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Punishing bank CEOs
Will limiting executive pay work? Should it?
W

hat happened
The Treasury Department’s plan to inject $250 billion into U.S. banks comes with strings attached—participating banks have to agree to limits on executive compensation. While the U.S. owns equity in the banks, the firms cannot offer “golden parachutes” to their CEOs, CFOs, and other top executives, and must have “claw-back” clauses for bonuses that were earned through bad accounting. (MarketWatch)

What the commentators said
The compensation plan is tougher than expected, said Theo Francis in BusinessWeek online, but “it probably won’t cost most executives a cent.” The penalties for disregarding the rules typically aren’t big enough to seriously affect pay packages, or are redundant with existing law. The bottom line is that banks will pay CEOs what they need to.

That’s probably best, said Jamie Whyte in the Financial Times. Regulating the pay of bank managers is politically popular, but it’s also “wholly wrong.” Setting up a system where an employee’s interests are more in line with the employer’s is tricky, but “government is clearly incompetent in this field.”

No, the U.S. "is rightly insisting on some restrictions on bank bosses’ pay,” said BreakingViews.com’s Richard Beales and Rob Cox in The New York Times. If anything, it should “show more ambition to change practices for the longer term.” That doesn’t mean CEOs can’t be paid well, just that they should be “paid well for lasting success, not fleeting profits.”

Pay limits could be the least of bank executives’ worries, said The Economist online in an editorial. Even if they didn’t do anything unethical or illegal, the “current political climate” is so toxic that they may end up being punished, either through pay recovery or even jail. “If you doubt it,” just ask the CEOs of Enron, WorldCom, and other failed firms.

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