Zero Hedge

Everyone's favorite populist Robin Hood (in tights) for the common (Wall Street) man, chimes in on Geithner's latest initiative to allow much more governmental (SEC) intervention in pay determination. Also amusing is how Frank throws Geithner under the bus. There seems to be a pretty concerted political push against TTT now: the Summers camp must not be happy. Regardless, Frank is boldly spearheading an initiative for full socialization of exec comp - 5 year plenary sessions to be introduced to discuss the effectiveness of these shortly.

Frank Statement on Administration’s Announcement on Executive Compensation

Washington, DC – Financial Services Committee Chairman Barney Frank today released the following statement in response to the Obama Administration’s announcement on executive compensation:

“I am very pleased that the Secretary of the Treasury, on behalf of the Obama administration, is proposing significant action to deal with the problem of compensation packages that encourage excessive risk taking and have contributed to the current financial crisis.

“It is not the role of government to set policy regarding the amounts that are paid in compensation to top executives, nor to deal with the question of how that compensation is allocated among salary, bonuses, retirement packages, etc. But as Secretary Geithner’s remarks recognized, there are two very important points that we should address.

“First, shareholders must be empowered to have a major role in the process of setting overall compensation. While it is not the government’s role to say that a certain amount is too much, [especially when it is AIG and the applicable tax rate is about 90%] it is very much the right of the people who own the company to speak out if they think excessive compensation is being proposed. The system of say-on-pay that was piloted in England is a reasonable way to do this, and I was proud that the House adopted the bill that came from the Financial Services Committee to institute this in 2007. Unfortunately, the bill did not go forward in the Senate, but I am optimistic that with the support of the President, we will be able to enact this important principle into law. Recent evidence in England shows that when shareholders are in fact troubled by excessive compensation, say-on-pay is an effective tool for them.

“I also agree with Secretary Geithner’s annunciation of the principles that should guide the structure of compensation – not the amount. But I differ with his view that this can be accomplished by strengthening the independence of compensation committees. Given the inherently close relationship that exists between CEOs and other top executives on the one hand, and boards of directors on the other, it is very unlikely that you will ever get the degree of independence that will allow the boards of directors to be left completely on their own to set compensation. That is part of the reason for say-on-pay. But it is also the reason why legislation should be adopted that instructs the Securities and Exchange Commission to set principles which prevent boards from providing compensation systems that lead to excessive risk taking.

“It is not the government’s business to discourage risk taking, but neither should we allow systems which have existed up until now whereby decision-makers are handsomely rewarded if they take big risks that pay off, but suffer no penalty whatsoever if those risks result in losses to the company. CEOs and others have defended incentive systems as ways to align the interests of the decision-makers with those of the company. That is entirely correct, but one-way bonus systems do not do this.

“Therefore I believe that we should be going beyond the proposals the Secretary makes with regard to the compensation structure, and adopt legislation that mandates that the SEC adopt appropriate rules that embody these principles.”