Is the ‘Pay Czar’ Unconstitutional?

[WSJ Law Blog]

Last week, word broke that the Obama administration’s “Pay Czar,” Kenneth Feinberg (pictured), was slashing compensation for executives at seven large financial firms. Click here for the WSJ story.

Amid all the discussion over whether the move was good or bad, overdue or counterproductive, one question, according to former 10th Circuit judge and current Stanford Law prof Michael McConnell, got lost in the shuffle: Was Feinberg’s action constitutional?

McConnell, writing Friday for the WSJ’s opinion page, thinks the answer is a resounding no. Writes McConnell:

Mr. Feinberg’s ukase is the most prominent example (and not just by the Obama administration) of the exercise of power by an individual unilaterally appointed by the executive branch without Senate confirmation—and thus outside the ordinary channels of Congressional oversight.

That’s the argument, in a nutshell. But McConnell knows his way around the Constitution, and prefers to give Journal readers a bit more:

The Appointments clause of the Constitution, Article II, section 2, provides that all “Officers of the United States” must be appointed by the president “by and with the Advice and Consent of the Senate.” This means subject to confirmation, except that “the Congress may by Law vest the Appointment” of “inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments.”

There is no doubt that Mr. Feinberg is an “officer” of the United States. The Supreme Court has defined this term (Buckley v. Valeo, 1976) as “any appointee exercising significant authority pursuant to the laws of the United States.”

. . .

While somewhat more disputable, Mr. Feinberg’s is probably an “inferior” officer, defined as one subject to supervision and removal by a member of the cabinet. . . . This means that Congress could, if it wished, vest the appointment of the pay czar in the secretary, without any need for Senate confirmation.

But Congress has not done so. On the contrary, it vested the authority to implement TARP’s compensation provision in the secretary of the Treasury. The secretary may sub-delegate that power to someone else—but that someone must be an “officer” properly appointed “by and with the advice and consent of the Senate.”

The Supreme Court observed in Buckley v. Valeo that the provisions governing appointments under the Constitution reflect more than “etiquette or protocol.” They embody the Founders’ conviction that all power under U.S. laws must be exercised by officers with constitutional authority.

It’s understandable, perhaps, if, after reading this far, your reaction is: “eh, what’s the harm? Why this adherence to constitutional formalism in a time of national crisis?” McConnell has an answer for you:

The Founders understood that the president and heads of the executive departments could not single-handedly carry out the law, so they required Senate confirmation as what the Federalist Papers call “an excellent check” on abuse or favoritism by the president.

The power to set compensation at large American businesses is especially subject to potential abuse, favoritism, arbitrariness, or political manipulation. It is no reflection on Kenneth Feinberg, who has a sterling reputation and who appears to have approached these sensitive duties with a spirit of commendable integrity, to say that the checks and balances of the Constitution should be scrupulously observed. They were not. Because he is not a properly appointed officer of the United States, Mr. Feinberg’s executive compensation decisions were unconstitutional.