Yesterday, the White House issued new compensation rules for TARPed companies. This comes on the heals of naming Ken Feinberg as the new “Pay Czar” to ensure executive compensation rules are followed. Some of the limits were even aimed at the firms who have received larger, more “exceptional assistance”: Citigroup, Bank of America, AIG, GM, GMAC, Chrysler, and Chrysler Financial. According to an AP story, the compensation regulations “limit top executives of companies that receive TARP funds to bonuses of no more than one-third of their annual salaries.”
But this is only the start. The government continues to want to meddle in compensation. According to the AP:
“the administration plans to seek legislation that would try to rein in compensation at publicly traded companies through nonbinding shareholder votes and less management influence on pay decisions.
Members of Congress want even stricter rules, with shareholder votes be binding on boards.
What seems to escape lawmakers is that if they continue to hand hold companies, financial institutions will lose the incentive to reform on their own. After all, if the government makes all the necessary changes for them then they can claim a lack of responsibility for future failures. Cause of the government didn’t change things then it must have been okay.
Private firms, if given the freedom to fail, have every incentive to develop the best possible compensation packages and standards. They will be much more aware of what is needed for their firms than a one-size fits all rule book handed up from Washington.
This is just another in a long string of government shenanigans dealing with pay in the private sector. I wrote about the Pay for Performance Act back in April.