Executive Pay in the Spotlight
Oct. 29, 2009
Isaac Cohen for HispanicBusiness.com
|
|
|
|
Finally, last week, the U.S. government announced the widely anticipated restrictions on executive pay in rescued companies and in banks. The Treasury, through the executive compensation czar, Kenneth Feinberg, identified those bailed out companies that will have to comply with limits. Among them, the big insurance company American International Group, two banks, Citigroup and Bank of America, and two automobile manufacturers and their financial companies, Chrysler and General Motors.
Simultaneously, the Federal Reserve announced that reviews of executive compensation will be part of the routine supervision of banks, particularly in what it described as 28 large, complex banking organizations.
Of all the proposed reforms of the financial sector, restraints on executive compensation are easier to understand. Because executives from companies, bailed out by the government with substantial injections of tax payer money, continued receiving hefty compensation, in the form of bonuses, private jets, limos and other perks. In the terms of former Federal Reserve Chairman Paul Volcker, executive pay had become "grotesquely large."
Intervention by the government to regulate executive pay is part of a concerted effort among the governments of the Group of Twenty. The objective is to eliminate the practice, generalized among big financial institutions, of compensating executives in a way that encourages risk taking. Therefore, instead of imposing quantitative limits to executive compensation, for instance, the Federal Reserve said that executives that generate better results taking less risks, should be better compensated.
Isaac Cohen is the former director of the Washington Office of the United Nations Economic Commission for Latin America and the Caribbean (ECLAC). He is a commentator on economic and financial issues for CNN en Espanol TV and radio.
Source: HispanicBusiness.com (c) 2009. All rights reserved.
|
