Is the Pay Czar Unconstitutional?

Former federal appellate judge Michael McConnell, now a professor at Stanford, argues that the “Pay Czar” is unconstitutional.  Specifically, he argues that the “Pay Czar,” aka the Treasury Department’s “Special Master” for executive compensation, is an “officer” of the United States for purposes of the Appointments Clause (albeit likely an inferior officer) because he is an “appointee exercising significant authority pursuant to the laws of the United States.”  Article II, section 2 of the Constitution provides in relevant part:

He [the President] . . .  by and with the Advice and Consent of the Senate, shall appoint Ambassadors, other public Ministers and Consuls, Judges of the supreme Court, and all other Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law: but 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.

Under this provision, all officers must either be nominated by the President and confirmed by the Senate with one exception.  Congress may vest the power of appointment of an inferior officer in the President or a “Head of Department.”  It did not do so here. As a consequence, the “Pay Czar” cannot exercise “significant authority pursuant to the laws of the United States,” such as the authority to set executive compensation levels for TARP recipients .  Congress delegated this authority to the Treasury Secretary.  While the Secretary may sub-delegate this authority, he may only do so to a duly appointed officer of the United States, and the “Pay Czar” does not qualify.

McConnell concludes:

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.

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.