Economic chiefs want pay changes
WASHINGTON — One could almost hear the page turn.
Last week, Congress raged over employee bonuses paid by insurance conglomerate American International Group. On Tuesday, lawmakers listened soberly as Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke called for a regulatory regime that would set compensation standards on financial institutions, including companies like AIG.
In another time, such a suggestion would have drawn protests from Republicans unwilling to interfere with corporate decisions. And Republicans might still draw the line at companies that receive taxpayer assistance.
But AIG and the overall travails of the financial sector have opened a seam in Congress for policy makers to renew a debate over limitations or conditions on executive pay.
Neither Geithner nor Bernanke offered specific proposals, but both men echoed the same idea — linking incentive pay to an institution's long-term success. The compensation standards would be part of a broader regulatory overhaul Geithner is expected to propose Thursday.
Democratic lawmakers and the Obama administration have been working on the outlines of a new regulatory regime. Among other things, it would give the government authority to intervene in troubled financial institutions, much as Federal Deposit Insurance can step in to liquidate failing banks. The changes also would call for an overarching authority to help oversee risk by large institutions that are so big they can single-handedly undermine the financial system.
Behind the compensation concept is the belief that many financial institutions reward their executives for short-term, high-risk gains that have negative long-term consequences.
Industry watchers say under such a plan, companies would be encouraged to provide bonuses, incentives and retention pay with deferred income, typically stock that vests after three, four or five years. Financial executives, the thinking goes, would thus act more prudently.
