OCTOBER 16, 2009
Direct Interference in Wall Street Pay
WASHINGTON -- Assailing
Wall Street's excesses is as natural as shaking voters' hands for lawmakers
who are eager to pull out the pitchforks when executive pay catches the
But with banking and
investment powerhouses prepared to pay record bonuses less than a year after
many were rescued by taxpayers, the reaction from the Democratic majority in
Congress has been muted. In sharp contrast to the furor surrounding insurer
American International Group Inc. in March, when aggressive taxes on
bonuses were seriously debated by Congress, lawmakers instead seem content
to carry only a small stick when dealing with the finance industry.
Lawmakers are hesitant to
be too active on Wall Street pay because they don't want to be seen as
having too big a role in the economy. The financial crisis forced Congress's
hand last year, resulting in a number of members casting uncomfortable votes
for the $700 billion bailout package. Now that markets are calmer, many are
cautious about taking steps that could suppress a fuller recovery.
"I think it's a delicate
balance ... [Wall Street pay] does seem large, but at the same time you
don't want to stifle your sales force," said Scott Talbott, senior vice
president for government affairs at the Financial Services Roundtable, a
bank lobbying group.
That has sparked unease on
the left. "I try not to be naive, but I'm surprised at how little is being
done to restrain Wall Street so soon after an epic collapse," said Robert
Weissman, president of liberal consumer group Public Citizen.
Fundamental changes to
compensation rules are instead likely to come through the Treasury
Department and Federal Reserve. Kenneth Feinberg, the Obama administration's
pay czar, is expected soon to make major changes in the compensation
packages for 175 of the most-highly paid executives at the seven firms that
have received the most government aid. Mr. Feinberg also is reviewing the
pay structures for the next 75 top-paid employees at each firm.
The Fed will focus on
"incentive compensation" across a firm's entire structure, not just at the
executive level, with the goal of identifying situations where pay
structures encourage excessive risk-taking. Mortgage brokers being paid to
write as many loans as possible, rather than writing quality loans, would be
the type of thing regulators would scrutinize.
Fed governor Daniel Tarullo,
asked about compensation levels during a Wednesday Senate hearing, said too
many financial firms have yet to "come to grips with the fact that things
"Things are going to change
more; that means business models, that means the way of assessing risk, that
means how you run your institution," Mr. Tarullo said.
Congress, which has
embarked on the most ambitious rewrite of securities laws since the Great
Depression, is embracing a relatively low-key effort on executive pay.
Central to the effort is so-called say-on-pay legislation that generally
would give shareholders of a company a nonbinding vote on its executives'
pay packages. The Obama administration has expressed support for the
provision as part of the broader revamp of financial regulation. Earlier
this year, Congress tamped down Wall Street bonuses, but just for banks
receiving cash from the Treasury Department's Troubled Asset Relieve
Rep. Barney Frank (D.,
Mass.), a staunch advocate of the measure, said this year's rebound in Wall
Street pay underscores why shareholders should have a greater say. He fended
off charges from the left that his plans were too weak. "I don't think the
public sector should decide [pay levels], but it's important for
shareholders to have more say."
Some lawmakers on Capitol
Hill plan to push for more-onerous rules. Rep. Brad Sherman (D., Calif.)
said the largest financial firms are benefiting from an implied government
guarantee and should face stricter limits than just a nonbinding shareholder
—Aaron Lucchetti contributed to this article.
Write to Michael R. Crittenden at
Printed in The Wall Street Journal, page A19
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