7:11 am September 18, 2009, by Henry Unger
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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