The interference by the government in executive pay at banks has drawn a growing amount of criticism as to whether it’s primarily motivated by politics and garnering favor with the public.
All of this is generated by the announcement of Obama “pay czar” Kenneth Feinberg, who spewed out orders concerning what he is going to allow top people at financial institutions to be paid.
At this time, what we know is the combination of base salaries and bonuses will be halved, while almost all salaries will be capped at $500,000 or under (this is for those that received bailouts and haven’t paid them back yet). The Treasury Department and Federal Reserve has also introduced a bunch of new regulations which will rein in executive compensation at numerous banks as well.
Now the premise of these wage controls is based upon the theory that there is a link between high executive compensation and excessive risk-taking. The truth is that it has really only been asserted and regurgitated by the mainstream media, and not really been checked out in any way to prove it. At this time it’s assumed, and a good way to potentially deflect attention away from the real problem of this fiasco: the Federal Reserve, which is fighting to get attention off of its role in all this, as they prefer to operate behind the scenes with no attention on their dubious activities.
When you check it out a little as far as executive compensation, they are primarily paid through stock, which they hold for long periods of time for the most part. What apparently is assumed is that risk will be taken to the extreme because traders will be pressured and rewarded for making more money, as well as their leaders. But it’s not as simple as that, as most risk is able to be hedged – limiting the losses – and the question of whether banks really ever lost money on these deals hasn’t really even been asked, and the results are only assumed to be based on that.
Some banking industry watchers also feel this look far too much like retribution against the industry, when the actions and Obama’s recent comments on Friday lend itself to that.
We have to await further details concerning all of this, but so far it looks like nothing more than populist politics rearing its ugly head in attempts to make it look like the administration is punishing the financial institutions for the unproven behavior being implied as the reason behind the economic struggles of the huge financial institutions.