The Federalist Society Online Debate Series
The Pay Czar & the Appointments Clause – a Forum
November 19, 2009
Last updated at 10 AM on Monday, January 4, 2010
Under the statute authorizing the Troubled Assets Relief Program, Congress authorized the Secretary of the Treasury to "require each TARP recipient to meet appropriate standards for executive compensation." By emergency rule promulgated without notice and comment, Secretary Geithner created the position of "Special Master for Compensation" or Pay Czar, and named Kenneth Feinberg to this position. In late October, Mr. Feinberg cut compensation for executives at seven large financial firms. In an op-ed in the Wall Street Journal, Michael McConnell, the Richard and Frances Mallery Professor of Law and Director of the Stanford Constitutional Law Center, argues that Mr. Feinberg's actions are unconstitutional because powers of the type entrusted to Mr. Feinberg may only be exercised by an officer of the United States, appointed in a manner consistent with the requirements of Article II, section 2, clause 2 of the Constitution. This provision stipulates that all "Officers of the United States" shall be appointed by the President "by and with the Advice and Consent of the Senate," with the exception that "the Congress may by Law vest the Appointment of such inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments." This forum will discuss the arguments put forth in Professor McConnell's op-ed regarding the Pay Czar and the Appointments Clause. We have excerpted the key paragraphs of the ep-ed in the first post below.
Professor McConnell's op-ed regarding the Pay Czar and the Appointments Clause is available here.
Michael W. McConnell
Bio 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." Mr. Feinberg signed last week's orders setting pay levels for executives at Bank of America, AIG, Chrysler Financial, Citigroup, GMAC, General Motors and Chrysler. They have the force of law and are surely an exercise of "significant authority" pursuant to an Act of Congress. He is not a mere "employee," acting at the direction of a superior. That means his office is subject to the requirements of the Appointments Clause. 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. Although he has substantial discretion and independence, Mr. Feinberg reports to the secretary of the Treasury, who can fire him any time for any reason. 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. ... 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. Yes, there are some offices so inferior that this check may be eliminated—but it is for Congress to judge which ones these may be. Congress and Congress alone has power to dispense with the safeguard of the confirmation process. 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. |
Martin Flaherty
BioWhile not necessarily a good thing for the Republic, Judge McConnell's retirement from the bench does yield one benefit. He can now, as here, contribute his insights to a robust, ongoing debate concerning major constitutional issues in a way that a sitting judge cannot. In querying whether Pay Czar Kenneth Feinberg is, in effect, constitutional, he has identified yet another instance in which presidential power challenges the Founders' vision of separation of powers. |
Michael W. McConnell
BioI appreciate Martin Flaherty's willingness to engage on this issue, and his kind words on my return to academia. It appears that he and I agree that the use of an unconfirmed "pay czar," unauthorized by Congress, is unconstitutional. Since, as he points out, we probably disagree on the wisdom of the underlying policy but agree about the constitutional issue, this raises the question: Why did the Administration proceed in this fashion? |
Steven Schwinn
BioI'm truly honored by this opportunity to engage with Judge McConnell and Professor Flaherty on such an important and timely issue, and I'm more than a little humbled to share this space with two such distinguished thinkers. Let me start with a few comments about the unfortunate label "czar." These "czar" positions have proliferated in recent administrations and, as we know, have drawn heavy criticism most recently in the Obama administration. While some of these positions raise serious separation-of-powers and Appointments Clause issues, many, even most, do not. Importantly—and thankfully—their constitutionality does not turn on their label alone. Instead, it turns on their functions, their duties, and their processes of appointment. The "pay czar"—or, rather, the Special Master for Compensation—was created, appointed, and empowered by the Secretary of the Treasury who, in turn, was empowered by Congress under the bailout program. The Secretary issued thorough and detailed emergency regulations—123 pages of rules—on precisely how to cap executive compensation, and he created the Office of Special Master to interpret and apply these. Under these regulations, the Special Master both enjoys great discretion and is subject to tight controls. Thus, for example, the Special Master alone reviews compensation plans and approves compensation packages, issuing the government's "final and binding" determination on these. But on the other hand, the Special Master also serves merely at the will of the Secretary, he is guided by the Department's detailed regulations under the bailout program, and his actions are subject to full and mandatory public disclosure. Moreover, the position expires as soon as the companies that received bailout funds pay the government back. With this combination of discretion and control, the Special Master's status for Appointments Clause purposes is not entirely clear. He is probably an inferior officer, as both Judge McConnell and Professor Flaherty suggest. (Given his tight control under the Department regulations and his inherently temporary appointment, however, one might argue—although I'm not—that he is a mere employee, not even subject to the Appointments Clause. The Office of Legal Counsel concluded a couple of years ago, during the Bush administration, that an "office" must be "continuing," Buckley v. Valeo notwithstanding. By this standard, the Special Master comes awfully close to a mere employee.) If the Special Master is an inferior officer, the question becomes whether Congress, in authorizing the Secretary to regulate executive pay under the bailout program, adequately vested the appointment in the Secretary. We know that Congress did not specifically vest the appointment in the Secretary, and to this extent the appointment appears to violate the language of the Appointments Clause. But it's not obvious how formal compliance with the Appointments Clause would better serve the purposes of the Clause in this case. For example, it's hard to see how a sub-delegation of the same authority to an already-existing officer in Treasury—one of Judge McConnell's suggestions to comply with the Clause—would have created any different role for Congress, any greater transparency in executing the functions, or any greater oversight than the Special Master. Either way—through an already-existing office, or through the Special Master—Congress is merely authorizing the Department's oversight of executive pay, and not a particular office or a particular person to oversee executive pay (as it would if the Special Master were a principal officer). In either case, it would be the Department's decision how to oversee executive pay. The Special Master likely raises even fewer separation-of-powers worries. The office serves at the will of the Secretary, is tightly controlled by Department regulations, and is transparent. Congress authorized its functions in a highly publicized piece of legislation, thus fulfilling the traditional role of the legislature and ensuring accountability through Congress; and the Secretary tightly controls the office and can fire the Special Master at will, thus fulfilling the traditional role of the executive and ensuring accountability through the Secretary. Any perception that the office is independent and unaccountable is at odds with the weight of the regulations. Congress and the administration might well have created and empowered this office differently. (Judge McConnell offers some excellent suggestions.) And they certainly would do well not to call it a "czar." But at bottom it's hard to say that the Special Master is unconstitutional. |
Michael W. McConnell
BioI welcome Steve Schwinn to our conversation and appreciate his contribution. I certainly agree with him that the term "czar" is unhelpful; the question is whether the office of this particular "czar," the Special Master for Compensation, comports with Article II. As to that, I am a bit confused about Professor Schwinn's position. He concludes his comment with the statement: "at bottom it’s hard to say that the Special Master is unconstitutional." But up to that point all his arguments were trending the other way. He observes that the pay czar "enjoys great discretion" and that "[h]e is probably an inferior officer," as Professor Flaherty and I have argued. (Professor Schwinn toys with the possibility that Mr. Feinberg is merely an "employee" – but in the end does not embrace that argument.) It follows that Congress may vest appointment in the Secretary of the Treasury without Senate confirmation, but has it done so? Professor Schwinn then raises, and rejects, the theory that Congress "in authorizing the Secretary to regulate executive pay under the bailout program, adequately vested the appointment in the Secretary." But vesting authority in the Secretary to carry out a function is not the same as creating an inferior office, appointed by the Secretary, to carry out the function. Thus, Professor Schwinn correctly concludes: "We know that Congress did not specifically vest the appointment in the Secretary, and to this extent the appointment appears to violate the language of the Appointments Clause." I would have thought this was the end of the legal question. The Pay Czar is unconstitutional. |
Steven Schwinn
BioI appreciate Judge McConnell's very thoughtful responses. We seem to agree on several important points. First, the term "czar" is unhelpful. (I go even farther and say that it's harmful in that it inflates the position beyond its clear parameters in the Treasury regulations. This inflation can too often lead to confusion about the nature of the position in the public discourse.) Next, Congress could have – even should have – created or vested authority for this position in any number of different ways that might have given the Secretary more blunt and direct authority and might have increased transparency and accountability. (Judge McConnell offered several fine suggestions in a previous post.) Finally, the Appointments Clause is no mere formality; it serves an important role in preserving the separation of powers and in promoting transparency and accountability. |
Michael W. McConnell
BioProfessor Schwinn makes the best case I have seen for the constitutionality of this arrangement, but I still am not persuaded. Congress has statutorily authorized the Secretary to delegate authority to an "officer or employee of the Department of the Treasury." 31 U.S.C. § 321(b). Professor Schwinn and I agree that Mr. Feinberg is not a mere "employee." If he is an officer, his appointment required the advice and consent of the Senate, unless the Congress provided otherwise, which it did not. The question, to me, is whether Art. II requires congressional authorization of the creation of a non-advise-and-consent officer. My copy of the document suggests that it does. The only argument I see in the lower court decisions Professor Schwinn cites is that this would not be "convenient." |
Martin Flaherty
BioI too welcome Steven Schwinn's participation in this discussion, especially as the points he makes are cogent and sensible. And ordinarily I am inclined to agree. On purely policy grounds, as I noted, an office of Special Master and the policies it is designed to discharge make good sense. Not only are the excesses of the pay structures on Wall Street symbolically corrosive, but they have also led directly to the economic crisis from which we are only now emerging. From a constitutional viewpoint, moreover, a careful study of the Founding indicates that Congress and the President should have substantial flexibility in developing institutional mechanisms to meet the nation's changing needs. All that said, I nevertheless continue to view the Special Master as unconstitutional as currently established. This conclusion follows on formal and functional grounds. Formally, in contrast to many separation of powers issues such as removal, here there is constitutional text that provides a good measure of guidance. The Appointments Clause, of course, involves Congress on either one or two tracks: higher officers and others. It may be that Congress properly vests appointment of mere functionaries solely in officers that it creates. The Special Master's powers, however, are substantial. Limiting compensation of leading executives in leading corporations that set the tone for the economy may not render the Special Master on par with a cabinet official. But I agree with Judge McConnell that powers of the office place it at least on the lower enumerated track, on par with the now defunct Independent Counsel. In functional terms, the Special Master also fails to pass muster. One point of the Appointments Clause, not to mention separation of powers in general, is to insure a balance of power among the branches to prevent a tyrannical accretion of power in any one. Congressional involvement in the appointments process with regard to officers who exercise, as here, significant power, is one way to insure this goal. A multiplicity of officers such as this whose appointments are not subject to any sort of Congressional input, would increase the power of the Executive, by far the dominant branch, still further. Granted, a second function of separation of powers is to promote specialization and efficiency. Assuming sufficient popular support to create an office such as the Special Master, it is hard for me to see how Congress having to vest the formal power of appointment in, say, the President alone, would prevent either the subsequent appointment of the Special Master, nor the Special Master from undertaking exactly the policies he has chosen so far. To the contrary, his policies would generate less resistance precisely because he would have a better democratic pedigree. A final core function of separation of powers is accountability. Not the leaden version put forth by unitary executive advocates. The Founders instead gave every branch, even the judiciary, some democratic provenance. But especially with regard to the political branches, the Founding vision means that both the President and Congress should be involved in major policy initiatives. This stands in contrast to the theory that a statute delegating authority to the Executive means that only the President, and not Congress, is accountable for aspects of implementation that go beyond mere execution, such as issuing of regulations or agency adjudicatory decisions. It seems to me that this last principle applies to the Special Master as well. The Executive cannot be the only branch accountable for the appointment of an official of such power. Congress could easily cure all of this by vesting the appointment of the Special Master in the President. Who knows? Maybe even Joe Lieberman would vote for it. |
Steven Schwinn
Bio I appreciate Judge McConnell's and Professor Flaherty's thoughtful and incisive comments, and I share their insistence–and the Constitution's requirement–for a separation of powers and balances between the branches to preserve the values that they both so powerfully express. But I continue to believe in this case that the Secretary's creation and appointment of the Office of Special Master satisfied the requirements of the Appointments Clause. Drawing on the language that Professor Flaherty helpfully introduced to this discussion, I'll try in closing to put our points of disagreement in sharper focus in order to help readers decide where they come down. In formal terms, Judge McConnell and Professor Flaherty read the Appointments Clause to require a specific vesting–that Congress must have specifically named and empowered the Office of Special Master in the bailout legislation. In contrast, I argue that congressional authorization to the Secretary to perform the functions of the Office, Congress's previous and general authorization to the Secretary to delegate authority, and congressional acquiescence in the creation of the Office together satisfy the formal requirements of the Excepting Clause. The Exception Clause, of course, doesn't say when or if Congress must specifically name and empower an inferior office. Instead, it speaks in broader terms, saying that "Congress may by Law vest the Appointment of such inferior Officers . . . in the . . . Heads of Departments." (Contrast this general, ambiguous language with other, determinate clauses in the Constitution, like the requirement that "neither shall any Person be eligible to [the office of the President] who shall not have attained to the Age of thirty five Years . . . .") This language seems to be vague enough to accommodate a specific vesting (as Judge McConnell and Professor Flaherty argue) or a more general vesting (as I argue). Without a clear answer in the language itself, we look to the array of interpretive modes, including (most relevant here) functional considerations, original understanding, and practice. In functional terms, Professor Flaherty worries about checks to avoid tyranny, specialization and efficiency, and accountability. Judge McConnell articulated similar concerns. In contrast, I argue that the detailed statutory and regulatory structure creating and guiding the Office–with all the attendant oversight and publicity–satisfy these concerns. I also argue that the framers wrote the Excepting Clause to give Congress and the administration flexibility and convenience in appointing inferior officers, and that this approach is consistent with congressional and administrative practice. Judge McConnell rightly counters that the two circuit cases to address the question are based largely on convenience. But convenience here is no trivial matter: it seems to be a motivating consideration driving the flexibility for appointments of inferior officers in the Excepting Clause (as opposed to the rigidity for appointments of superior officers in the Appointments Clause). I'll make just one final point to try to put this discussion in a larger context. It seems that most Appointments Clause and separation-of-powers debates arise when defenders of presidential authority argue that Congress did too much, by, for example, creating independent boards or offices that are not sufficiently accountable to the unitary executive and thus encroach upon the President's power. (The Court is considering just such a case this term in Free Enterprise Fund v. PCAOB. The Federalist Society hosted a recent on-line debate on this case, as well.) But here the claim is that Congress did too little, and that the Secretary's move in this congressionally created power vacuum aggrandizes executive authority and confuses the lines of accountability. The two debates–the more typical Appointments Clause cases and the Special Master question–nicely bookend Appointments Clause and separation-of-powers issues, and considering the two together may give us even greater insights. This discussion has certainly caused me to rethink my own positions on these questions, and for that I am deeply grateful to our host and to my co-participants. I want to thank the Federalist Society again for inviting me to join this discussion, and I'd like to thank Judge McConnell and Professor Flaherty for so warmly welcoming me. It has been a true pleasure and honor. |
Michael W. McConnell
BioFirst, let me convey my holiday greetings to Professors Schwinn and Flaherty, and my thanks for an interesting conversation. I do not have much more to add, except to note that if Professor Schwinn is correct, the executive branch will be free in every case, without congressional authorization, to create new positions outside of senatorial confirmation, and to assign whatever delegated powers they wish to such people. With all respect, that seems to be precisely what this provision of the Constitution was written to prevent. |
Martin Flaherty
Bio My only substantive comment is triggered by Professor Schwinn's understandable effort to draw a distinction between the Constitution's ostensibly permissive wording regarding the how Congress is to vest the appointment of inferior officers and other texts that appear to be more express. Much as lawyers tend to bridle against this, I would counsel wariness about over reading the Constitution's text. As a historian, I believe it is clear that the Constitution reflects not just the problems of a committee document, but of a document riven with compromises, gaps, holes, and wording that reflected multiple understandings, not to mention a desire to wrap things up and get out of Philadelphia. This is not to say that the words don't provide guidance. But I do hesitate in giving too much weight to stylistic choices that Gouverneur Morris made in late August of 1787. More importantly, I would also like to thank Professor Schwinn, Judge McConnell, and the Federalist Society for another stimulating exchange. I know I come away from it both challenged and better informed. |

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