Will changing the structure of executive compensation change Wall Street?
Risky deals drove Wall Street to the bank with record profits and then to the brink with astounding losses. Even still, it is hard to curb risky behavior. Risky deals have the highest potential payoffs. The flip side is they also have the highest potential losses.
According to the Associated Press, today the Federal Reserve released details of its plan to monitor bank pay. The plan would not involve setting executive compensation.
The Fed would instead review pay policies and exercise its power to veto policies that ”encourage excessive risk-taking.”
The logic is that executives, loan officers and traders will be discouraged from behaving badly since their pockets won’t …read more

Pay czar Kenneth Feinberg has decided to bring the hammer of his authority crashing down on the executive pay packages of the seven firms receiving the most federal aid. According to media reports, Feinberg and the government will limit the pay of the twenty five highest-paid executives at these companies, with salaries taking the biggest cuts.
In all, salaries are expected to plummet 90 percent on average and total compensation will most likely fall by about 50 percent, marking a huge decrease in the amount that many executives will be receiving as compensation this year. The executives of AIG’s financial products …read more

Bank of America’s outgoing chief executive Ken Lewis, whose resignation from the post came as a complete surprise to Bank of America’s board of directors, will essentially earn no money for his work in 2009 due to the mandate of Kenneth R. Feinberg, the Obama administration’s special master on compensation. Lewis will instead return about $1 million to the bank.
Feinberg, who has the authority to set executive compensation levels of seven major corporations that received federal bailout money, suggested that Lewis should receive no wages or special compensation for 2009. Lewis agreed with Feinberg’s suggestions and stated that he does not …read more

One of the discussions going on at the G-20 summit happening in Philadelphia is all about the stimulus packages and exit strategies. However, the policymakers in the G-20 have agreed to keep stimulus measures in place until all of the countries involved are on their way to sustained recoveries and until exit strategies from the economic stimulus can be coordinated. (It appears as though the G-20 is about to replace the G8 as the main council for global economic coordination.)
This is an interesting point, since there are concerns that economic stimulus measures, if not lifted at the right time, could …read more

Recently, the Obama Administration expressed its desire to complete a regulatory overhaul of the financial system. As part of that overhaul, some are considering that regulators may need more power to limit bank bonuses.
Tying bank executive bonuses to risk
One of the issues right now is the fact that executive bonuses are not usually tied to risk. This means that bank executives could get paid big bucks for moves that may mean immediate profits, but bring on added risk down the road — risk that could lead a financial market meltdown like we saw last year. The scrutiny comes as severance …read more

As most people are already aware, the financial crisis has been largely blamed on excessive risks taken on the part of financial systems that aimed to bring in huge paydays for bank employees. Now, though, the Federal Reserve plans to implement several rules that will change how banks pay their employees in order to avoid dangerous risk-taking.
 
The government has faced enormous pressure from both the outraged public and from other countries, such as France and Germany, to curb these harmful practices. In response to these desires, the Fed has finally rolled out a series of guidelines that will come into …read more

Oracle CEO Larry Ellison has decided decrease his annual salary to $1 for the year 2010, according to Oracle’s filing with the Securities and Exchange Commission. The move will shave exactly $999,999 off of Ellison’s income compared to this year, but fortunately for Ellison, the world’s fourth-wealthiest man, his base salary only accounts for about 1.2 percent of his total earnings.
Other massively wealthy executives have paved the way in the field of $1 base salary reductions, such as Apple CEO Steve Jobs and Google founders Larry Page and Sergey Brin. According to Oracle’s filing with the SEC, Ellison’s company wants …read more

What did the top-paid CEOs make in 2008?

House passes legislation to limit executive compensation.

If an employee brings in revenue or cost savings for their company, is it unreasonable for that person to receive a bonus equivalent to one percent of the value they brought to the firm?
Should the one percent change if the value brought to the firm is $10,000 as opposed to $10 million? Does it matter if the person is a Wall Street banker?
In my March issue of Forbes Magazine, I read an anonymous submission entitled, “An anonymous trader defends his pay.”
Here is the text:
In 2008, during the darkest hours of the global financial crisis, true heroes emerged on Wall Street. Skilled professionals were sent in …read more