May 14, 2009

Bank executives' pay is under the microscope yet again as the Obama Administration announces plans to further curtail compensation at the nation's financial institutions—even at those that did not receive bailout funds.

A report in The Wall Street Journal says the move, in its early stages, is being considered as an effort to more closely align executives' compensation with the performance of the company and the associated risks. Some ideas being floated include using the Federal Reserve to curb banks' ability to pay employees in a way that would threaten the "safety and soundness" of the bank, such as paying loan officers for the volume of business they do, not the quality. The administration is also discussing issuing best practices to guide firms in structuring pay, says The Journal.

Not to be left out of the action, House Financial Services Committee chairman Barney Frank (D-Mass.) is crafting legislation that could strengthen the government's ability both to monitor compensation and to curb incentives that threaten a company's viability or pose a systemic risk to the economy, the report says.

All this would be in addition to the current overhaul for the financial services industry being pushed by the Treasury. But any further interference by Washington in how financial institutions pay their top employees will likely be met with some resistance, The Journal astutely notes. Expect news from the Treasury on the new rules within the next few weeks.

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