Obama’s Schechter Poultry?

chickens1Over at the Wall Street Journal Deal Journal Blog, Michael Corkery speculates how federal law limiting private corporation executive compensation may be unconstitutional.

The issue is whether the amount and form of consideration a corporation, through its board, pays its employees, including executives, is a subject sufficiently affecting interstate commerce to authorize Congress and the President to regulate under the commerce clause.

The activities of large corporations and trading in their securities involve interstate commerce. So there’s little doubt that federal securities laws or various other laws regulating related activities pass muster.

But employee pay, particularly highest-paid executives? That is a matter concerning the internal affairs of the corporation. It implicates that conflict of law principle, which enjoys a respectable pedigree, including in constitutional law.

Obama’s proposals to cap pay for various companies would apply whether or not the federal government has invested funds in them, using debt or equity. The proposals may not be unconstitutional.

But they differ from securities law disclosure requirements and even Sarbanes-Oxley Act provisions about board independence and board supervision of auditors. Those creep into internal affairs yet the underlying accounting issues addressed involve capital allocation issues whose affect on interstate commerce is more clear cut than what to pay people.

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6 Responses

  1. Paul Gowder says:

    No way. Regulation of pay, especially bonus practices, affects the incentives of executives in trades on not only national, but global, markets. Suppose, for example, the feds regulated bonuses s.t. the incentives to make speculative trades went away. Seems pretty clearly a direct regulation of interstate commerce.

  2. When they are ultimately paid with my tax dollars the bonuses and salaries certainly have an impact on interstate commerce.
    How is maximum wage any different from minimum wage legislation ?

  3. JP says:

    supremecourtjester is right. The interstate commerce argument is not remotely credible. The law should include a jurisdictional requirement that the affected firms/employees are engaged in interstate commerce, produce goods for interstate commerce, or handle, sell, or work on goods or materials that have been moved in or produced for interstate commerce, or have at least $500,000 in annual revenue. (These are the FLSA’s jurisdictional limits).

    Even if this limitation isn’t expressly in the law, I doubt it could be seriously argued that the firms affected don’t meet these requirements (and weren’t selected at least in part because they have a much, much larger impact on interstate [or international] commerce).

  4. Paul Gowder says:

    JP, you don’t think bankers handle, sell, or work on goods or materials that have been moved in or produced for interstate commerce?

  5. JP says:

    Paul, I absolutely do think bankers do those things. That is why “I doubt it could be seriously argued that the firms affected don’t meet these requirements.”

    [If the (sort of) double negative is confusing, let me rephrase: I think it is clearly the case that the firms (and individuals) affected by the law meet the interstate commerce jurisdictional requirement (as used by the FLSA and, I would think, under almost any reasonable constitutional analysis).]

  6. JP says:

    When I said supremecourtjester was right, I didn’t mean to imply that you were wrong, Paul. I agree with both of you, and disagree with Lawrence and Michael Corkery. I just had the same initial reaction that scj did: federal minimum wage and overtime laws have long been accepted as valid regulation of interstate commerce. How could a federal limit on executive compensation possibly be different?