Financial Services Pay Overhaul
I just read an article (http://online.wsj.com/article/SB124215896684211987.html#mod=testMod) that was about the federal government wanting to play a role in determining how financial services companies pay their employees. They are focused on banks and it initially started out with looking at the role the compensation played in the overall banking/financial problems that we are now facing. I understand the logic behind not wanting to continue rewarding executives (who should be rewarded based on the overall performance of the business, regardless of what that business is) while their business is crumbling and receiving federal aid. If the company is in such dire straights and the government deems it important enough to help (that is another issue all together), then that executive should not be rewarded for outstanding performance when they, essentially, led their company into near-bankruptcy.
As you go lower through a company though, things get much murkier though. For instance, why should a trader, who on an individual basis, did an outstanding job, be punished excessively and need to return their bonus which was contractually agreed upon? This is part of the pay structure for the position and is pretty much a standard setup (from my knowledge). This is different than the way that most of the working world is set up and I think that it is basically that difference that drives peoples emotional decisions on the matter.
Also, what gives the government the right to attempt to regulate pay at firms that did not receive aid? If the company is private or publicly traded, that company can pay its employees whatever it feels like. If a bank is going to pay it's employees so much that it's going to go out of business, then it should go out of business because the management team is incompetent and irresponsible. It is not the governments job to protect us from ourselves. Savings deposits are insured as are a number of other things. The purpose of the market is to punish those that are inefficient, inept or otherwise poor performers. By the government stepping in and telling companies how much they can pay for a certain position, that company has basically become a government entity and soon will be filled with government-like people. If the incentive for high performers is removed, then so too will the high performers themselves. They will go elsewhere, where they can earn better compensation. The ones that remain are the ones that probably didn't get the large bonuses to begin with and all that will be left is mediocrity.
Another thought, after banks, what's next? The government will probably step in on automakers, seeing as how they are going to be owning so much of them. Next will be insurance companies and then who knows. Maybe government contractors (the government would be able to do a lot more if they didn't have to pay much for it!)? Maybe food companies like Frito Lay, Nabisco and others (since we all need to eat and why should they profit off our need!)? Probably cigarette companies (after all, that's dangerous!).
Probably none of that will ever happen. Chances are, this is all just a bunch of political posturing and nothing will come of it. There is one group, however, that I think should be looked at and their pay structure should be drastically altered. Congress. I think that senators and representatives should all receive pay based on performance. Sure, it should be complicated to judge, but I'm sure that metrics could be devised and they could be rated and ranked for all the world to see. And, since they are so concerned with transparency, their pay, bonuses, stipends, awards, or whatever you want to call it, should be clearly presented to the American people so that they too can be judged and we can determine if we think that the job their doing is worthy of their salary.
Just my $0.02.
posted by clowridr at
5:52 AM
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