I’m sure there was further panic on Wall Street at the announcement that the Obama administration intended to intervene in banking compensation policies.
To be honest, the U.S. government’s record on intervention in executive compensation is a poor one. But this is becoming a truism.
I find myself agreeing to a certain extent with the chief executive of the American Bankers Association quoted in the Wall Street Journal; that the rules be general in nature and enforced case by case.
What this misses is that the enforcement must be enforced. It is not difficult to conclude that an administration like the Obama one – that is fully in agreement with us that one of the key drivers of the current economic crisis was poor compensation practices – will be up to enforcing the rules, but what about an administration that is friendlier to Wall Street? What about an administration whose chief backers work on The Street?
If the Fed is to enforce any more stringent rules that might be envisioned, then the Fed’s board and its chairmanship must become apolitical appointments.
No one knows what the new pay rules are going to look like, but if the Obama administration knows what is best it will look to business for a solution from its own ranks, not impose one from government. An idea growing in popularity is the bonus bank, similar to that adopted by Swiss bank UBS. UBS’s plan does not defer the bonus payment for long enough, it needs to be more similar to the three to five years (these deals took a long time to go sour) espoused by Peter Cohan.
This is not socialism, and those who think it is should go check a dictionary, this is responsible capitalism.
Paul Hodgson — Senior Research Associate, Executive and Director Compensation
