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Opinions and views from expert CFOZone members.

Sep 17

Banker Pay: the Fed (finally) cracks down

Posted by kcates in reformpayKarl CatesFedcompliancecompensationbonusesBanks


It’ll be interesting to see how the Fed’s bold proposal to rein in banker pay will play out, but it’s hard to imagine much effective resistance.

The scheme would keep payrolls at the 20 or so biggest banks under the government microscope and make an additional 5,000 smaller banks abide by compensation guidelines.

The crucial component of the plan is its use of a template – not a ceiling – but a template by which a whole host of bank employees and their leaders will be compensated, tying pay to long-term performance instead of quick-buck artistry. If you’re expecting a bonus windfall for that fantastic tranche of mortgage securities you bought (or sold) yesterday, maybe now you’ll have to wait and see if it looks so fantastic a year from now.

It’s a “bold” proposal because the Fed has been under extreme fire from both the right and the left to do less, not more (fear-of-super-regulator syndrome) -- but there’s enormous anger on all sides, and from the grass roots up, about the self-generosity of the banking industry. The Fed, seems to me, is shrewdly capitalizing on this across-the-aisle ire.

Pity the money changers captured in the WSJ headline: “Banks Wary of Fed Pay Proposal.”

Ya' think?

But Bernanke and company have populism on their side -- for a change. The agency with all of its many bank bailouts over the past year has come to be perceived as an all-too-willing enabler for the very industry that proved so inept at regulating itself. It knows now that putting responsible curbs on banker pay is one way to improve its image and, more important, upgrade the rickety nature of a financial system in need of a crackdown on monkeyshines.

And, hey, it doesn’t need congressional approval. We might not get a very good national health-care makeover. But I bet we get this.

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