Obama’s Executive Pay Plan

The International Herald Tribune is reporting that President Obama is considering putting massive regulations on corporate executive pay due to recent events:

“Increasing oversight of executive pay has been under consideration for some time, but the decision was made in recent days as public fury over bonuses has spilled into the regulatory effort.

The officials said that the administration was still debating the details of its plan, including how broadly it should be applied and how far it could range beyond simple reporting requirements. Depending on the outcome of the discussions, the administration could seek to put the changes into effect through regulations rather than through legislation.

One proposal could impose greater requirements on the boards of companies to tie executive compensation more closely to corporate performance and to take other steps to assure that outsize bonuses are not paid before meeting financial goals.

The new rules will cover all financial institutions, including those not now covered by any pay rules because they are not receiving U.S. government bailout money. Officials say the rules could also be applied more broadly to publicly traded companies, which already report about some executive pay practices to the Securities and Exchange Commission. Last month, as part of the stimulus package, Congress barred top executives at large banks getting rescue money from receiving bonuses exceeding one-third of their annual pay.”

What is important to note above is that these new rules will cover all financial institutions. This includes those that are not getting money from bailouts. This is another attempt by the Obama Administration to ignore the reasons why the banks failed and come up with solutions that will not do anything to improve the situation. In fact, this could cause a bigger problem in the future. For example, pay caps will cause people of high expertise to find a different job in which could pay them what they are worth. These financial corporations will not be able to bid for the best of the best, thus causing them to settle for mediocre at best. This could ensure another crisis.

It is easy for us to pretend that we know how much a CEO is worth, but we don’t and if we did they would have already hired us to do just that and find the perfect guy for the right corporation.

The rest is here.



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