On the plus side of the ledger, Barack Obama came out with some surprisingly strict restrictions on executive pay for banks that take advantage of the bailout (though only from this point forward -- it's not retroactive). Limiting executive compensation to $500,000 is far more severe step than most thought the administration would take. $500,000, after all, is a mere 19 times the median individual income, more akin to the 1965 ratio of CEO-to-worker pay (24:1) than the 2007 ration (275:1). Some, of course, argue that this is all perception and populist pandering. But Felix Salmon makes a strong case that it amounts to more than that:
The system of annual bonuses was the best way yet devised of incentivizing top managers to push as much risk as possible into the tails. The way to get rich in banking isn't simply "to make money for your business", it's to come up with a strategy which outperforms everybody else, usually because the risks are hidden and there's a chance of it blowing up spectacularly. In fact, there's a case to be made that Bob Rubin's entire private-sector career followed exactly that path.Fixing the compensation structure on Wall Street is an absolutely necessary part of the solution.And PR maneuvers do actually serve a function, insofar as they send a message that the government expects to see serious and meaningful change.Oh, one other point: 50% of Wall Street revenues go to compensation. This isn't off-point, this is very much the point.
Is he right?
