Bankers Face Sweeping Curbs on Pay
The Federal Reserve's signals its intention to propose rules governing compensations practices for all banks, not just TARP recipients or those receiving extraordinary assistance. Presumably using its safety and soundness authority, the proposals are likely to be controversial. On the one hand, the Fed runs the risk of proposing rules that are too vague or high-level. On the other, the rules could be too prescriptive, and be an unprecedented interference with the pay practices of American businesses. Either way, there will be ample fodder for criticism.
Perhaps the main concern with rules of this type, and indeed the legislation pending in the Congress, is the issue of state versus federal primacy in corporate governance.
"Anytime we have a third party usurping the authority of the [corporation's] board is problematic for us," said Charles Elson, Director Weinberg Center for Corporate Governance at the University of Delaware.
Elson said the best solution to compensation issues is strengthening the board of directors, in part through more viable elections, he said. "The solution has been there all along. We just haven't focused."
Is it time for banks to return to the fundamentals of sound governance principles?
