I was at a Borders bookstore recently when I saw an interesting title for a bio of FDR: “Traitor to His Class.” That aptly describes me when it comes to the ridiculous and outsize pay packages that Wall Street has notoriously awarded for decades. Now the Federal Reserve wants to rein that pay in. Woohoo!
As proposed the Fed would be able to reject compensation packages that encourage bank executives to take too much risk. This includes the pay of CEOs, asset traders, and loan officers. The Fed stops short of creating the pay packages. Instead, it is proposing that it be allowed to review, amend and reject bank pay packages.
It is estimated that the proposal will effect tens of thousands of bank employees. Further, it’s believed that the proposal will result in firms taking back compensation retroactively that was previously awarded if that pay was the result of excessive, and ultimately destructive, risk taking. Genius! As I have said since the inception of ze blog one of the core evils of our current version of capitalism is the way executives are compensated. Beyond the fact that the pay packages are gigantic, the packages also only reward success, but do not punish for failure. Essentially bankers are always playing with “house” money.
I will continue to track the progress of the proposal. In the meantime, know that it receives my endorsement.
Jason
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