Bank Bailouts and Executive Compensation

Today’s lead article in The New York Times is titled, “Treasury Plans Wider Oversight of Compensation.” It describes new plans to be announced by the Obama administration regarding limits on the exorbitant bonuses and salaries typically paid to top executives in the financial industry.

More specifically, the plans include especially tight restrictions on companies who have received two (or more) bailouts from the government under the TARP program. These companies, including Citigroup, Bank of America, General Motors and AIG, will have to submit any compensation changes to a specially appointed Czar, Kenneth R. Feinberg. Congress had already restricted TARP recipients to bonuses no greater than one-third of their salaries for their top 25 executives.

The plans are sure to bring controversy by the right wing who oppose nearly any intervention in the financial system. But we should remember it was this very deregulation that almost caused the entire worldwide system to collapse. It seems prudent to increase regulation, if only to protect the public and the taxpayers, who are now supporting these companies.

Of course, the financial industry and major banks are already geared up with intensive efforts to lobby Congress. They are asking that traders and other salespeople be exempted from the “top 25″ list. So far Congress is holding firm, but the final result is far from certain.