Sunday, October 25, 2009

Government Has Banker Pay Shifting to Stock

NBC's Meet the Press hosted Erin Burnett and Andrew Ross Sorkin. They spoke on executive pay curbs for banks taking government bailout money. Both indicated the new regulations have little teeth. Compensation will shift from salary and huge cash bonuses. It will likely involve stock compensation, with no caps.

Does anyone at the Fed or Treasury recall widespread stock option cheating over a 10-12 year period? Stock options were considered a pure form of executive incentive compensation. Yet, management cheated on nearly 30% of stock options via backdating. The practice was at least unethical and often illegal according to SEC regulations. Very few cheating CEO's were charged with a crime, even fewer went to jail. Most settled up, returning their ill gotten gains.

Cash bonuses drove risky behavior, imperiling America's financial system.

Prior to that, stock option incentive pay drove widespread unethical behavior.

Therefore, stock compensation is the answer? Wrong, incentives are the problem. A return to quality, founded on profound management, is needed.

Optimizing pay for executives, suboptimizes the system for everyone else, including customers.

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