Should the government review pay at banks?

As we all know, risk-taking at banks, driven partially by their compensation policies, helped throw the economy into a tailspin.

So should the government get heavily involved in reviewing their future pay decisions?

Or will that just make matters worse?

The Wall Street Journal is reporting today that policies that set the pay for tens of thousands of bank employees nationwide would require approval from the Federal Reserve as part of a far-reaching proposal to rein in risk-taking at financial institutions.

The Fed’s plan would, for the first time, inject government regulators deep into compensation decisions traditionally reserved for the banks’ corporate boards and executives, the WSJ says.

Under the proposal, the Fed could reject any compensation policies it believes encourage bank employees — from chief executives, to traders, to loan officers — to take too much risk. Bureaucrats wouldn’t set the pay of individuals, but would review and, if necessary, amend each bank’s salary and bonus policies to make sure they don’t create harmful incentives, according to the WSJ.

Is this a good idea? Why or why not?

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5 comments Add your comment

TBizzle

September 18th, 2009
2:14 pm

It’s a terrible idea and it sets a bad precedent. If the government can dictate pay here then what makes anyone think they government won’t go into their industry (hello, healthcare!)?

Were there unintended consequences of the compensation structure at financial services firms? Yes. However, let’s not forget that regardless of compensation there is still the elephant in the room named “personal responsibiity” for the borrowers to make good on their end of the bargain.

That said, many of the big banks have already altered their structures to include vesting stock and clawback provisions. It should also be noted that not all banking/financial services positions are the same (loan originator vs investment banker. sales and trading vs investment banking…etc) and should not have their compensation treated as such.

Cal

September 18th, 2009
3:01 pm

Enter your comments here
I don’t like the idea, however, if the banks want to go ahead and compensate its employees, then they should not ask for government bailout money now or in the future. Let the banks take the risks as well as the rewards without taxpayer money.

Cat Man Do

September 18th, 2009
6:36 pm

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Absolutely not. That’s not capitalism. Let the free market work. Getting big brother involved is a joke.

DeborahinAthens

September 19th, 2009
7:43 am

What has always puzzled me about this issue is this. If the huge bonuses were supposed to be paid to individuals for doing a good job, which means make profits for the banks, and the banks failed (Lehman Bros, Bear Stearns), almost failed (Citigroup), why were these people paid the bonuses? Tell me one single instance where they earned the money. If the boards of the corporations can’t monitor the executives’ pay, which is part of their job, then perhaps there should be stricter oversights. We are the only country in the world, where executive pay is thousands of times the average employees’ pay. This it true of most of our companies–not just banks. This is why we are no longer competitive, so I would say, hell yeah, don’t regulate the pay, but when they fail, let them fail. That is truly a free market.

Dave55

September 20th, 2009
10:55 am

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Taking risks with other peoples money is no risk when Uncle backs up even the most hair-brained “financial instruments” conceived by banks and investment houses for no other reason than a big payback if the roll of the dice pays off. Simply crazy. It may smack of socialism, and it may hinder some creative expansion, but when crooks are rewarded for stealing, something is terribly wrong, and the majority of Americans know it. Just watch out for the back door lobbyists who will fill in that corrupt space now occupied by the big banks. Bureaucrats and lobbyists watching over trillions? Another nightmare brewing.