Will Execs Change With Fed Monitoring Pay?

Will changing the structure of executive compensation change Wall Street?

Risky deals drove Wall Street to the bank with record profits and then to the brink with astounding losses. Even still, it is hard to curb risky behavior. Risky deals have the highest potential payoffs. The flip side is they also have the highest potential losses.

Photo by epicharmus, courtesy of flickr

According to the Associated Press, today the Federal Reserve released details of its plan to monitor bank pay. The plan would not involve setting executive compensation.

The Fed would instead review pay policies and exercise its power to veto policies that ”encourage excessive risk-taking.”

The logic is that executives, loan officers and traders will be discouraged from behaving badly since their pockets won’t receive as much padding.

Speaking of padding, would banks have been able to return to profitability so quickly if they totally changed their ways of doing business? Doubtful.

I agree that some of the pay structures are excessive and that many executives use phrases like “it’s standard practice” or the “market dictates” pay in order to shun the issue. However, I find it disappointing that the idea of monitoring or changing pay is being championed by the Fed.

I think if any group or entity should take the initiative to change the way executives are compensated, it should be the company’s shareholders.