Out of Control Policy Blog

Congress Wants to Set Salaries For All Bank Employees - Yes, For Janitors Too

Six months after the Troubled Asset Relief Program was passed to “save” America’s banks, the banks are trying to return the money.   Couple that with the Dow’s recent uptick and it might sound like the economy is recovering. Unfortunately, it’s just a sign that sometimes even hundreds of billions of dollars aren’t worth the headache of dealing with the federal government.  Banks are trying to get Congress out of their boardrooms.

The House has already passed, and the Senate may consider, a bill that would give Treasury Secretary Tim Geithner the power to set salaries of all employees at any bank that has received bailout cash. And not just the CEO’s salary, any employee: tellers, janitors, everybody.

Over 500 banks have received TARP money and they’d all be subject to intense micromanaging from the feds if the “Pay for Performance Act” becomes law.

At least eight banks have returned the money (or are trying to do so) thus far:

  • TCF Financial ($361.2 million) - located in MN, IL, MI, CO, WS, IN, and AZ
  • Signature Bank ($120 million) - located in New York
  • Old National Bancorp ($100 million) - located in Indiana and Ohio
  • Iberiabank Corp ($90 million) - located in Louisiana
  • Sun National Bank ($89.3 million) - located in New Jersey
  • Bank of Marin ($28 million) - located in California
  • Shore Bancshares ($25 million) - located in Maryland and Delaware
  • Centra Financial Holdings ($15 million) - located in West Virginia

Joseph DePaolo, CEO of New York’s Signature Bank that has over 20 branches in the five boroughs and Long Island, said Congress setting workers’ pay would “adversely affect” business.

DePaolo’s fears are justified. President Barack Obama fired the head of massive General Motors. Would Obama, or Congress, think twice about firing the CEO of little ol’ Signature Bank?

Sadly the answer is, no. Not even the spirit of the Constitution matters in DC these days. The 90 percent “AIG bonus tax,” showed that. Congress is becoming a runaway train, playing politics with the financial industry.

There is a sliver of hope though.  At the G-20 meetings in Europe, Obama responded to a question about executive pay and said, “It doesn't mean that we want the state dictating salaries; we don't.”

Obama says he favors a system where shareholders have a say in what corporate bosses get paid. That’s not a bad idea. Shareholders are owners of a company and they have a vested interest in the success or failure.

The idea that companies should pay employees based on performance is a good one. In fact, it’s proven strategy used by nearly every successful company in every industry. You pay to keep your best workers, and you pay to keep them happy.  The government doesn’t need to teach anyone that. Nor does it need to be telling banks what a teller or janitor should make.

Signature’s DePaolo said, “The return of these funds allows us to continue to execute our business model, which includes the successful recruitment and retention of highly talented banking professionals throughout the metropolitan New York area.”

Congress and the Treasury Department don’t have a clue about what individual employees bring to any financial firm so there is no way for them to accurately determine what people should be paid.

Washington’s activity is dictated by politics, not smart business decisions. The American people got angry about the AIG bonuses, so the House passed the AIG punishment tax. The auto bailouts are terribly unpopular with the public, so firing a CEO shows you are shaking things up.

The AIG bonus tax bill didn’t become law because President Obama eventually expressed his disapproval with it. He needs to do the same here.  And if “Pay for Performance” is such a great idea, why don’t members of Congress ask taxpayers to vote on their salaries? Then we’ll see how fair it really is.

Reason Foundation's Economics, Bailouts, Stimulus Coverage

Anthony Randazzo is Director of Economic Research


« Senate Bill to Gut Federal… | Main | Letting States Keep Gas Tax… »

Comments to "Congress Wants to Set Salaries For All Bank Employees - Yes, For Janitors Too":

anonymous | April 30, 2009, 9:40am | #

Anthony- You are criticizing efforts that are being made to help correct a problem, a problem that definitely needs to be fixed. I work in finance and there is no denying the fact that many people are overpaid, and some companies act like they are playing with monopoly money. Something should be done to set the standard. There are plenty of professions, such as teaching, pharmacy, and even some of the medical field- and all of these have something of a salary cap. I will say, that I know many people who would gladly take the jobs of those who aren't "getting paid enough" by this salary cap. I think this financial industry needs to come down to earth a bit. Banks are the entities that people need to trust, and when you see how money flies everywhere all the time, I think it is quite reasonable to put limits on some things.

Rob | May 7, 2009, 6:27pm | #

The market sets compensation. Which people in finance are overpaid? Do you know which ones? Are there any that are underpaid? Who are they? How do you know? We should not fall for the big-brother-knows-best fantasy that bureaucrats and politicians know how to set compensation policy. Even people who have been in the business for decades struggle with setting policies that are competitive and perceived as fair by employees. Anyone that thinks they are paid too much should volunteer to do the same work for less. In a market economy, one would be free to do that.



Out of Control Policy Archives