President Obama: First HR Officer

Posted by Marc Hodak on May 13, 2009 under Executive compensation, Politics | Be the First to Comment

President Obama, indicating that no aspect of corporate management is beyond the direct control of government, is now proposing to establish pay standards for the entire financial industry.

The administration is discussing issuing “best practices” to guide firms in structuring pay…

Government officials said their effort, which is just beginning, isn’t aimed at setting pay or establishing detailed rules. “This is not going to be about capping compensation or micro-management,” said an administration official. “It will be about understanding what is the best way to align compensation with sound risk management and long-term value creation.”

All this fuss about alignment is built on the clear evidence of Wall Street pay being clearly insensitive to performance.  For goodness sake, don’t those greedy people know that we had a crash in 2008?  Why do they continue to pay themselves as if nothing happened?

Oh, well, I guess the real question is, why did they pay themselves any bonuses at all?  Well, the reason doesn’t make any difference to this discussion.  This is not really about alignment or risk management.  If it were, the government would look to its own incentives, and their utter disregard for the incentives they have created–and continue to create–for making key players in the financial markets completely insensitive to the downsides of the risks they take.  This is really about scoring more political points against a politically vulnerable target.

Another report notes:

Options being considered by the administration and regulatory officials include using the Federal Reserve’s supervisory powers, the power of the Securities and Exchange Commission and moral suasion, the paper said, adding that officials are also looking at what could be done legislatively.

I love the part about moral suasion.  The U.S. government has grabbed the moral high ground on financial management.  That’s rich.  But I’m looking around at my fellow citizens to see if they’re in on the joke.

Meanwhile, we in the compensation community are trying the best we can to help our clients not place themselves at risk of ending up like Dick Fuld or Jim Cayne (who, contrary to the implications of these proposed “options” really are not who Wall Street bankers aspire to emulate) while navigating the most treacherous set of incentives and constraints ever laid down by government.