From CEO salary caps to taxes on AIG bonuses, American economic policy is reflecting a newfound populist anger.

Americans are mad, and they’re not going to take it anymore.

Which raises the question: Why were Americans taking it at all?

Backward CEO compensation is nothing new. According to The Wall Street Journal, Ford CEO Alan Mulally received $21.67 million in compensation for 2007. In the same year, Ford posted $2.72 billion in losses.

Overseas, more than 200 heads of Japanese firms have cut their own pay since April, according to a survey by the Nikkei Business Daily. And their CEOs already make much less money to begin with.

Now, there are a lot of factors that make executive pay around the world less than America’s. But judging from recent events, American companies seem to have the short end of the executive talent stick.

The economy is negating the argument that companies need to pay top talent top dollars, because it has become more and more obvious they’re not that talented.

For the sake of argument, say that executives were the most talented for the job. If that’s true, and the companies still tank, what does that say about their effectiveness?

Twenty million dollars a year for a CEO makes sense for a company like Apple that requires strong leadership for a clear direction.

But what direction do car manufacturing or insurance company CEOs
provide? Their future is simple: Make cars or sell insurance. Unless Ford starts making canned soup, their direction is pretty clear.

That’s part of the problem. Hardly anyone knows whether a CEO deserves compensation, because few people have a tangible idea of what he or she is doing.

If all working people in America have to prove to their boss that they’re competent to keep their job, their boss should do the same for them.

CEOs should have to prove that their involvement has gained their company more profit per year than their annual compensation.

And if a CEO’s compensation outweighs the profit increases he or she has brought about, that should be grounds for dismissal.

The way CEOs are paid should also be rethought. CEOs are compensated in a multitude of ways, the most dubious of which is the cash bonus.

It doesn’t matter if cash bonuses go to CEOs or cashiers. Giving an extra lump sum of cash to someone for no tangible reason, as demonstrated by AIG, is a bad idea.

One option, which was laid out by several economists in a paper for the Social Science Research Network, is to create an executive compensation system in which pay is directly linked to stocks.

If the stock goes down, the executive’s compensation is used accordingly to buy stock.

I’m not going to pretend that I fully understand the inner workings of such a model.

But executives can’t point to large profits and say, “Look what I’ve done,” and then point to huge losses and say, “Not my fault.”

If high-level executives are really worth millions of dollars, then they should share in their companies’ windfalls and woes alike.

Reach Chris at cogino@asu.edu.