I’m sure this will come as a major surprise:
When the Obama administration imposed restrictions on executive pay last year at some of the largest companies the government had bailed out, officials said they were aiming to set a new standard for compensation across corporate America that would discourage risky business practices.
But as firms begin to disclose last year’s bonuses ahead of annual shareholder meetings, it is becoming clear that companies across a wide range of industries are paying executives in ways that officials worry will not discourage the kind of excessive short-term risk-taking that led to the financial crisis.
The Treasury Department said it is not looking to limit the total pay executives receive. Kenneth R. Feinberg, President Obama’s special master for compensation, wants to change pay incentives, giving executives a greater stake in the long-term performance of their firms. That would mean, for example, smaller up-front cash salaries and fewer perks, more compensation in the form of company stock and a longer wait to receive it.
“I see no indication whatsoever that the business community is paying any attention to the administration’s suggestions,” said Nell Minow, co-founder of the Corporate Library, an independent corporate governance research firm. “On the contrary, I think pay is worse this year than it’s ever been.”
Long time readers will know my aversion to populism, and I think that is, to some extent, something Obama instinctively shares (for better or for worse). He just isn’t very good at demagoguing issues like this, and it isn’t something that comes naturally. He makes a stab at it every now and then, but overall, his performance in this regard is pretty weak. The only real effort at populism that stands out to me was when he told the banksters that it was him standing in between them and the pitchforks.
At any rate, before I start to ramble, this is a time when some populism from the Democrats is radically needed. One of the major recurring themes of the new Michael Lewis book, The Big Short, was that a lot of this was not so much caused by outright criminality, which would be easy for the American people to understand, but by a lot of groupthink and a system in which horrible short-term decisions are rewarded with great wealth. Basically, what Lewis is arguing is that the financial system is what it is because of the way incentives have been set up. In other words, greedy people behaved precisely as you would expect them to behave when you set the system up this way.
In short, this Washington Post piece about the big money boys and girls skirting the rules should surprise no one. They are going to keep doing what makes sense for them in the short run, because quite frankly, there is no incentive for them to change. And that is where the Democrats and this administration need to act.