The Wall Street Journal, quoting anonymous sources, said officials are considering instituting greater compensation regulation by using the Federal Reserve’s supervisory powers, the power of the Securities and Exchange Commission (SEC) and legislative efforts. Among the goals: Increasing the connection between pay and performance.
For example, the Journal said, such compensation curbs could be based on Federal Reserve rules restricting 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, the Journal said.
Edward Yingling, chief executive of the American Bankers Association, told the Journal banks might be able to accept new rules “as long as they are general in nature and could be enforced on a case-by-case basis. What would never work is detailed regulation of compensation.”
Another business trade group argued in comments to the Journal that companies already agree with the need for a pay-for-performance standard. “Our companies have already enhanced, strengthened and expanded the number of compensation programs that are tied to long-term incentives,” Scott Talbott, a senior vice president at the Financial Services Roundtable, a trade group, told the Journal.
The Journal said that as the Obama administration considers its own moves, U.S. House Financial Services Committee Chairman Barney Frank (D – Massachusetts) is working on 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.
Government officials said their effort, which is just beginning, isn’t aimed at setting pay or establishing detailed rules. “This is not going to be about capping compensation or micro-management,” said an administration official. “It will be about understanding what is the best way to align compensation with sound risk management and long-term value creation.”
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