WASHINGTON — The Federal Reserve announced a plan on Thursday to eliminate pay packages that in the past have encouraged bankers to take the kinds of reckless risks that contributed to the housing bubble.

[...]

“Compensation practices at some banking organizations have led to misaligned incentives and excessive risk-taking, contributing to bank losses and financial instability,” the Federal Reserve chairman, Ben S. Bernanke, said in a statement. “The Federal Reserve is working to ensure that compensation packages appropriately tie rewards to longer-term performance and do not create undue risk for the firm or the financial system.”

http://www.nytimes.com/2009/10/23/business/23pay.html?hp

It's over.

Wow, I didn't think they'd go this far. Then again, LOTs of backlash against the leaking numbers.

"One senior official predicted that they would do nothing to curtail the lucrative pay at firms like Goldman Sachs and Morgan Stanley, both regulated by the Fed since becoming bank holding companies last year during the financial crisis.

Instead of pay limits, the Fed rules are intended to discourage pay packages that may encourage risky practices."

I wouldn't bet that it's over at this point. This looks like a political move to make it appear like they are coming down hard on the banks, but they will ultimately not do anything to firms that haven't taken bailout money. Those 7 firms will have their hands tied until they pay the $ back, but by the time people figure out that this means nothing to all of the other firms the economy will be better, the UE #'s will be moving in the right direction, people will be making money again and the average American's 3 second attention span will be more focused on Gossip Girl than on how much Morgan Stanley is paying out in bonuses.

I could be wrong, but that's my guess at this point in time.

Well, I look at it this way... big bonus numbers are already being talked about. If the actual numbers come out and they hold, heads will roll. So, the options are... the bonuses get paired, or they aren't paired enough, and there is a huge backlash and the restrictions get even worse.

If the "wall street bonus" number comes out and its big, you'll have most of the country up in arms.

Probably wouldn't hurt for the banks to use the money to rebuild their weakened capital positions so they don't have to go hat in hand back to the taxpayers anytime soon.

I would imagine that they will not be all-cash numbers. A significant portion will be in stock with a longer vesting period and there will/could be some claw-back provisions and life will go on. Again, just my guess.

They're weren't all cash numbers last year, either. UBS and some others topped cash at $750k... meaning it was almost all stock for big earners. The notes on others showed higher %s as well.

I can only imagine it will be even more the case this year.

Claw-backs are pretty new though.

"Probably wouldn't hurt for the banks to use the money to rebuild their weakened capital positions so they don't have to go hat in hand back to the taxpayers anytime soon."

Or how about, I dunno, maybe paying some back to the folks who OWN THE COMPANY. Shareholders should be getting most of the profits (after the government is fairly paid).

i would actually go the other way the pay czar is going. i would ban bonuses and impose only cash compensation agreed ahead of the year unrelated with the amount and riskiness of the paper shuffling. if the worker didn't shuffle well enough, such worker gets fired. that's how it works on most of other sectors.

the risk of being fired is enough incentive for delivering good performance imho. finance's goal as a sector is to distribute efficiently capital across the other sectors of the economy. imho the performance with the bonus structure has been extremely poor (both in terms of amazingly bad distribution of resources and in terms of putting at risk the entire economy). what is the evidence that suggests that a pay structure similar to any other sector (non commission, fixed salary) would deliver worse results?

then obviously as taxpayers, we shouldn't pay anybody a higher salary than what the president gets paid. but hey, that would bring the CEOs and MDs pay down to what a VP earns in an ok year. i don't think is a big deal at all, it's still 10 times what the avg joe makes. these guys should be happy & thankful that the avg joe saved their jobs imho.

Why stop there?

How about, doctors make too much, so let's cap them at $100k/year. Teachers? Please, they only work 1/2 a year. Let's keep them at $40k and tell them to take the summers off. All union members? Your work has been shoddy over the past few decades....$35k for you. Lawyers? You have a bad rep, but we'll give you $85k.

Seriously, the government is not going to control compensation at any firm that hasn't taken bailout money. We are a capitalist society and we will remain a capitalist society. Kudlow, Beck and Cavuto are all nuts with there socialism tirades. It's not going to happen.

This is all (mostly) lip-service right now.

> How about, doctors make too much, so let's cap them at $100k/year.

Did the doctors need a bailout?

I must have missed that. From what I remember, they were some of the few people making enough to PAY FOR the bailout.

"Seriously, the government is not going to control compensation at any firm that hasn't taken bailout money."

I think thats off.

The part you're leaving out is even if the bank doesn't need the bailout, if the government is their backstop, its a party to the company's success.

Just like banks need to have certain reserves if the gov is going to back them up, compensation limits in this case are relevant.

If you want Bankers to take less risk, undestand there's no money in that for them, Bankers make money, just like carpenters make tables. Gov't needs to pay them not to take excesive risk...

Kidding aside, the pay issue is a distraction. Outisde of companies like AIG & Citi where of course the gov't should have a say because of ownership, the real issue should be regulation, not pay. If we forced swaps to trade on exchanges & seperated investment from commercail banking, then bankers wouldn't be able to misprice derivatives to the disantage of Main Street and banks wouldn't have the Fed giving them 0% rates to borrrow.

The pay issue is sound bite material for a few guys in congress to express OUTRAGE....

"Did the doctors need a bailout?"

No, but Goldman, JP and Morgan Stanley paid back their $. And firms like Credit-Suisse, Deutsche Bank, Barclays and Societe Generale didn't get any bailout money (just like the doctors).

"the government is their backstop"

Okay, so anyone, anywhere who benefits from a bank should also have their compensation reviewed. Let's include anyone who has a mortgage, a savings account, a 401(k), etc. You take the money when the banks make money for you, but now you want to hammer them into the ground.

I'm not suggesting the banks are innocent. I am suggesting that the backlash against them is now getting to a point where the complaints are taking away from the real concerns and will ultimately lead to....nothing happening. Better regulation will do more than reviewing compensation, no matter what politician wants a good sound-bite for the reelction campaign.

Unfortunately the banks have lobbied big time, and Barney Frank has sounded a very sympathetic note to his patrons. Rahm Emanuel was right, "shouldn't let a good crisis go to waste". The public outrage is quieting down, and what's left of it is being mis-directed towards the bonus issue instead of making sure the system is sound.

"No, but Goldman, JP and Morgan Stanley paid back their $. And firms like Credit-Suisse, Deutsche Bank, Barclays and Societe Generale didn't get any bailout money (just like the doctors)."

But Goldman didn't pay back the AIG money they only got because the government stepped in to save them. And there wasn't a run on Goldman because the government stood behind them.

If you think the loans were the only backstop they got... wow....

"Okay, so anyone, anywhere who benefits from a bank should also have their compensation reviewed."

The logic there makes absolutely no sense. Its on the level of "so, anyone who walks by a bank should have their compensation reviewed". You're just making up nonsense sentences and pretending it has something to do with the argument.

No, anyone whose ability to make money hinges on the support and backing of the government, and forces the government to incur COST to do so, should be fair game. The government is part of their ability to make money, so the government gets its piece.

"I am suggesting that the backlash against them is now getting to a point where the complaints are taking away from the real concerns and will ultimately lead to....nothing happening"

If you don't think that compensation shemes weren't part of the problem, then you don't actually understand the problem.

If you don't think that compensation shemes weren't part of the problem, then you don't actually understand the problem

To a point, Board of directors should have guarded against this, and if regulators made sure proper reserves and margins were in place for each trade, then no issue. I blame the board of directors for comp, Why would anyone want to invest in a company that pays out everything. The gov't should concern itself with capital adequacy.

Yes, the boards should have been doing it.... but, if its a risk, the government has to make sure they're doing it.

And they clearly didn't, so its time for the government to do it for them.

The guy who runs the nuclear power plant should be doing x and y. But I'm sure as hell glad the government sets some rules and at least tries to enforce.

There are too many slippery slopes that they would be going down if that tried that route. I know full-well what the problems are and I think that focusing in on compensation the way they are is completely missing the boat. It is treating the symptoms and not the disease. Plus the fact that it's just not going to happen. The government is not going to determine compensation at firms. They are using it as a talking point now to appear that they are coming down hard on the banks, but in the end they will onaly have a slight impact on the comepnsation at the "non-7" firms. They should, and hopefully will, get their acts together and start making some real regulatory change because that will be more meaningful and lasting change that bitching about what some people at Goldman got for their bonuses.

"There are too many slippery slopes that they would be going down if that tried that route. I know full-well what the problems are and I think that focusing in on compensation the way they are is completely missing the boat. It is treating the symptoms and not the disease."

I think you have it backward. Compensation is the disease. We need the rules on capital requirements to hold back the morons who are compensated without regard to the risk.

"Plus the fact that it's just not going to happen. The government is not going to determine compensation at firms"

All actual facts to the contrary. It has already happened. Multiple comp packages have *already* been affected.

And they clearly didn't, so its time for the government to do it for them.

John Bogle wrote about this. He blames agency capitalism, where nobody owns stocks directly... Not sure what the answer is but the regulation of pay where tax payer isnt an owner is a stretch. We need to go about this another way. Agree pay is rediculous, but rather treat a cause than a symptom. To me pay is a symptom of the problem.

the too big to fail gov't guarantee bestowed upon goldman, citi etc: BEYOND FUCKING PRICELESS
what a complete joke this is...on us

priority should be to regulate their businesses and the products they conjure up and peddle--
if they are forced to deal in reasonable product, with reasonable leverage, subject to existing markup laws and most importantly to accurately MTM their own inventory, the illusory profits on which outsized bonuses have been based will go away--and for those who really do produce under these circumstances, why shouldnt they eat what they kill?

same msg as waverly basically

mine: dereg selfreg has failed abysmally

http://www.ft.com/cms/4fe40d1a-07b4-11dd-a922-0000779fd2ac.html?_i_referralObject=10664514&fromSearch=n