Obama has unveiled a plan to limit executive compensation for banks taking government aid:
President Barack Obama will unveil a series of pay curbs on
Wednesday, including a strict new limit on executive salaries for
companies that receive "exceptional assistance."
The rules represent the White House's attempt to ensure that
financial institutions receiving government money are held accountable
for spending it responsibly, an administration official said.
Under the new rules, companies that receive "exceptional assistance"
from taxpayers may not pay any top executive more than $500,000 a year,
an administration official said. Any additional compensation would have
to be in restricted stock that will not vest until taxpayers have been
repaid, the official said.
A reader writes to ask whether this is a good idea. Won't it mean executives will leave these firms in droves?
Under ordinary circumstances, perhaps. But executives are already leaving these firms in droves, supervised by security guards who carefully watch them clean out their desks. The market for used investment bankers is, as they might say, extremely illiquid.
Under those circumstances, I think this is reasonable. And while I am not particularly offended by the size of investment banking paychecks--though why they persisted in an allegedly competitive market is still something of a mystery to me--I don't think the taxpayer ought to be funding Swiss skiing chalets and Palm Beach Mansions. Get a house in Scarsdale and take the train like everyone else. If they don't like it . . . well, there's precious little evidence that any of them are the sole indispensible genius who can save their firm from the economic crisis, now, is there?
I do wonder what the term "executive" includes. The people who run investment banks often make less than their star performers. Are the traders also limited to $500K in total compensation? Because there is actually a risk there, I think--that all the traders who are really good at their jobs will strike out on their own. But with capital extremely tight, I'm not sure how big a risk that is.