Larry Downing
On Friday, The Wall Street Journal reported that a new proposal may give the Federal Reserve power to oversee bankers' pay across the United States.
The U.S. move comes amid mounting controversy over compensation schemes in the banking industry, with Europe leading a push for the Group of 20 leaders to agree to curbs when they meet in Pittsburgh later this month.
Readers, we asked you for your thoughts in executive compensation and we thank you for sharing your views. Here are some of the highlights of the feedback we received:
Several readers suggested shareholders should play a role:
Online reader "Matthew-73" writes: The shareholders should make the decision. The problem at the moment is the incestuous relationship between the boards and the executives. "Oh we'll give you a good raise." "Oh, well then we'll give you a better raise.", an on-and-on it goes. What needs to happen is Shareholders obtaining 100% of the right to fire or keep, and nominate new board members EVERY annual meeting. All board meetings and votes should be available on .pdf on each website. Once representatives boards are in place, they need to begin proposing to shareholders executive pay packages which the shareholders can then vote to accept or deny. Bottom Line: New regulation is required in order to create the transparency so that the shareholders (OWNERS!) of these companies can effectively make the decision they should have the right to.
Online reader "Mikey*G" writes: Banks' executives should be policed by their shareholders. If I am comfortable paying someone $2 million or $15 million, that is my choice as shareholder. With significant losses, the Fed won't need to police anything.What the fed should do is be harder on the reserve ratios to ensure that banks don't collapse the system under the weight of stupid private decisions. We don't need to ensure profitable banks, we need to ensure a stable system.
Online reader "Geo Centric" writes: Banks are private companies owned by shareholders. Shareholders should set the pay policy. UNLESS the government had to step in to prevent collapse of the company, that is. If I became an involuntary rescuer of any company, then my rules now apply. The insane pay bordered on criminal and were based on performance that was very close to fraud.I don't know why the shareholders tolerated it even during the good times.
Online reader D. Hall disagreed: Ge0-Centic: Your answer is meaningless in practice. I have been a bank shareholder for decades. I am a modestly successful investor who was able to retire at 53 and live off my investments without a pension. And I have absolutely no influence over bank policy, including pay levels. I do not get to vote on them. I do not get to choose between rival slates of candidates for the Board who do have a say. The idea of shareholder democracy in large, publicly traded companies is nonsense. I'm agnostic on the issue of bank regulators and pay. But let's keep the debate real.
Other readers talked about the role of boards of directors:
Online reader "Filibuster" writes: Government (or pseudo-government) regulation of pay is misguided. Instead, boards of directors should be transformed -- across all industries. Today boards are filled with directors that are too busy to effectively represent shareholder interests (and reduce agency costs) and/or are too close to management (to reduce agency costs).Being a director should be a full-time job (at larger publicly traded companies), there should be a professional designation for directors, and directors should have a degree of professional liability.
Online reader "Mouthy" writes: The directors should control pay, BUT shareholders must be given 'real' and 'effective' nominating and voting powers in electing those directors. This proposal tries to fix the symptom instead of the disease.
A simple calculation?
Online reader "Crusty Curmudgeon" suggested a calculation: There is a way to control salaries and bonuses -- make sure that there is a 20X or 100X factor (or some number) that says a CEO receives 20X the compensation of the lowest paid employee of any company (or its subsidiaries)anywhere in the world. That way at least the profit is spread over everyone who had a hand in making the profit instead of in the hands of the greedy few at the top who risk absolutely nothing. It is a simple rule -- even the government couldn't muck it up.
Some people objected to the idea of regulation altogether:
Online reader "brackenrig" writes: You can't limit a an employees salary or bonus. Just because they work in the banking industry does not give the federal gov't the right to regulate salaries. The bigger issue is gov't allowing banks and lenders to get so big that when they fall into financial trouble it negatively impacts the public. Banks and lenders need to be better regulated in terms of how they run their business, not how the reward their employees for doing their job properly.
Other ideas:
Online reader "Andre Jean" writes: Taxation could be one way of doing it. No reason at all why bonuses in excess of, say $5 million per year, were taxed at 99 percent. If a bank executive wants to leave the country as a result, there will be sufficient qualified people willing to take the job, I'm sure.
Online reader "santaidm" writes: Small investors are absolutely opposed to this nonsense. The problem is that compensation policies are brought up for a vote once a year just for the show because everything has already been decided, it's all bundled up and there's nothing to say. Then it gets approved by large private or institutional investors who just turn around and get their own package upgraded and approved by those they just indulged. Europeans wanted to cap the salaries but it seems they are now backing off as the U.S. won't go along; but maybe the cap was not really manageable over a long period. They only solution that I see as being manageable in to heavily tax the excess and for this to happen first bust the damn fiscal paradises. Of course all this is highly idealistic it is still better than doing nothing about it.
Online reader "legoyoeego" writes: The fed should set down clear rules for compensation and practices with respect to trade in risky derivatives and let banks know that if they don't comply, they will NOT be bailed out if they fail!!!! All of this is meaningless if the banks know they will be bailed out by the taxpayers (and I guarantee you they all knew it would play out this way after LTCM) when the s#%@ hits the fan.
Online reader "Hal951" writes: The Financial Industry needs rules in order to function properly. The rules need to be enforced by the regulators. The regulators need to be properly funded and competent. The Bush Administration (among others) with their mantra of deregulation did not understand any of the above. No change and history will just repeat itself.