7/31/2009

House votes to restrict restrict how Wall Street executives get paid

If shareholders really valued being able to determine managers' compensation directly, firm share value would rise from firms putting that in their bylaws. The Obama people don't seem to understand that there are costs to making managers have to go out and justify their compensation to others. From the Associated Press:

WASHINGTON (AP) - The House has voted to restrict how Wall Street executives get paid after nine banks that took government aid rewarded thousands of their employees with bonuses topping $1 million each.
The vote advances the first piece of a broader proposal by President Barack Obama to increase oversight of financial institutions.

The legislation goes farther than Obama wanted by prohibiting large companies from fashioning pay incentives that encourage employees to take financial risks that could threaten the economy or the viability of the institution.

The bill includes other Obama suggestions: It would give shareholders a nonbinding vote on compensation packages and prohibit directors on compensation committees from having a financial relationship with the company and its executives. . . . .


From the WSJ:

The bill, introduced by Representative Barney Frank, Democrat of Massachusetts, enables regulators to ban payments that give workers what the legislation calls “perverse incentives” to take risks that could hurt the nation’s financial system. . . .

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