Monday, June 08, 2009

US to Propose Wider Oversight of Pay

An update on last week's WSJ piece:

US to Propose Wider Oversight of Compensation the from the NY Times:
" The Obama administration plans to require banks and corporations that have received two rounds of federal bailouts to submit any major executive pay changes for approval by a new federal official who will monitor compensation, according to two government officials.

Some of the rules... apply only to companies that received taxpayer money.

Others, which are being described as broad principles, would set standards that the government would like the entire financial industry to observe as banks and other companies compensate their highest-paid executives, though it is not clear how stringent regulators will make them."

Wow. I will admit it, last week I said I was scared scared but it is a new week and the news is not getting any better. Does it stop at TARP firms? Or Wall Street firms? Or all finance firms? Or all firms? Ignoring the fact of misaligned incentives, how would it be done? I mean do you place a US official on every firm's executive compensation committee? Please not.

Maybe this is just a trial balloon? Maybe it will get shot down? But long term if this is any more a trial balloon it has the potential to be devastating to the US economy as in time the best and brightest will leave and start businesses elsewhere.

Henry Blodget writing for ClusterStock's Business Insider lays out why this is such a horrible idea better than I do.

Obama Geithner Wall Street Pay Caps:
"We clearly need tighter financial regulation, but capping pay shouldn't be part of it. Executive compensation should be decided by the shareholders and management of each individual company. The last thing we need is a government bureaucrat deciding how much is too much, especially on a case-by-case basis.

To be clear: The fact that the TARP banks took huge handouts and then turned around and paid deca-million-dollar bonuses to executives was outrageous, as was the pathetic defense that they had to do this or the execs would leave....

That said... the idea that the folks on Capitol Hill should routinely decide how much is fair to pay a commodities trader, investment banker, or stockbroker is a horrifying lurch toward socialism"
Read the Blodget article.

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