President Obama announced that he wants to impose compensation limits on executives of companies that receive government financial rescue funds. His proposal includes the following provisions:

• A $500,000 cash cap on annual compensation for senior executives
• Requiring top executives at financial institutions to hold stock for several years before they cash out
• Requiring nonbinding “say on pay” resolutions giving shareholders more say on compensation
• Bonuses can be clawed back if these executives provide misleading information
• No golden parachutes upon severance
• Companies must disclose perks such as jets and entertainment junkets

These provisions would apply only to firms receiving government funds and would be applicable until they are repaid to the government. This policy is clearly designed to mandate controls over FreePassers.

As a corporate executive, if you went to a private organization for money to assist you with a cash crunch and potential insolvency, they would require similar if not harsher terms for access to capital. Take Warren Buffett’s investment in Goldman Sachs for example. If the government is exercising similar prudence and responsibility for taxpayer funds, it appears quite logical that similar restrictions should be imposed.

President Obama said, “This is America. We don’t disparage wealth. We don’t begrudge anyone for achieving success. And we believe success should be rewarded. But what gets people upset-and rightfully so-are executives being rewarded for failure, especially when those rewards are subsidized by U.S. taxpayers.” I wonder if President Obama has been reading my blog!

Some experts are claiming that executive talent will depart these companies as a result of these limits to their earning potential. However, this does not restrict long-term rewards, only short-term payouts. Executives who believe in the long-term success of their companies will still do very well if they perform. They merely have to put their own financial upside on the line along with everyone else. If not, they are FreePassers, and keeping them around is more of a liability than an asset.