Merit Pay and Pain: Linking Congressional Pay to Performance

Abstract:     
Despite the Founding Fathers’ careful planning, the reason for the public’s lack of confidence in Congress is that elections, like the institutional checks and balances of federalism and separation of powers, are necessary but not sufficient to ensure that Congress acts in the best interests of the American people. Elections are not sufficient to resolve principal-agent conflicts between members of Congress and their respective constituents,and even if they were, then it would still be a fallacy of composition to conclude that elections were therefore sufficient to resolve the larger-scale principal-agent conflict between the American people as a whole and Congress as an institution. This Note proposes linking congressional pay to performance to incentivize members of Congress to maximize the nation’s economic welfare in a way that the Constitution’s system of checks and balances does not.

Part I argues that principal-agent conflicts between members of Congress and their respective constituents create large agency costs in the form of severe fiscal irresponsibility. Part II describes New York’s No Budget, No Pay Law and California’s Proposition 1F, two attempts to control narrower principal-agent conflicts at the state level, and similar congressional proposals that failed during the 1990s. Part III argues that supplementing elections with financial incentives is necessary to ensure that members of Congress will maximize the nation’s economic welfare and proposes a formula called Merit Pay and Pain for determining congressional pay raises - and pay cuts - based on the performance of macroeconomic indicators. Part IV, however, argues that both No Budget, No Pay and Proposition 1F would authorize future Congresses to violate the 27th Amendment if applied to congressional pay but that Merit Pay and Pain would not. Finally, Part V responds to possible counterarguments and identifies possible ways to improve Merit Pay and Pain depending on the results it actually produced.

Number of Pages in PDF File: 45

Keywords: Congress, merit pay, principal-agent, principal-agent conflict, debt, No Budget No Pay, Proposition 1F, Merit Pay and Pain, economic growth, GDP, 27th Amendment

JEL Classification: C72, C78, D71, D72, D73, E61, E62, H11, H50, H61, H62, H63, H68, K12, O43, O47, P16, P44, P48

Accepted Paper Series