Jun 12, 2009 0 Comment
Due to the financial meltdown in Wall Street, the Obama administration has decided to bail-out troubled banks using taxpayer money. As can be expected, the public was outraged by this development. The common consensus during the time the TARP program was being developed was, “why should we pay for the banks’ mistakes?” Well, the bailout actually came with a long list of strings attached. One of the most notable ones was the limit imposed on executive compensation.
Over the course of these past few months, we’ve seen the fast recovery of some of the nation’s biggest banks. And how each of these banks has struggled to raise capital in an effort to pay back the TARP money they received. Behind all this is a very strong motive: bank executives want to be in control of their compensation and company strategy. This week’s round-up is composed of blogs that had talked about banking executives’ compensation, its importance, and what it will mean for the average person.
Mark @ CS Monitor talked about how the government plans to restructure how bank executives are paid. His post titled “Obama Looks of Overhaul Executive Pay” talked about the proposed “say on pay” legislation. It will essentially give shareholders a bigger voice in how much the board and other top management officials will be paid. The initiative is designed to minimize risky behavior by tying executive compensation to behavior.
Gary @ Uncommon Common Sense wrote an in-depth post titled “America’s Big Business: When you Commit a Crime” on his blog. The article essentially discussed how bank executives “knew better” than to take the risks they were taking prior to the financial crisis. But they were operating in an industry that encourages high risk to increase they pay.
Andrew @ Harvard Law School Blog provides a comprehensive look as to why bank executives behaved the way they do in the industry. Titled “Compensation Structure and Systematic Analysis” dealt with pay arrangement that encouraged extreme risk taking to product pay incentives. In addition, the article discussed how short term focus distorted long term planning on the part of the banks.