Bank expert blasts Fed compensation plan - St Louis BizTalk - 23 Sep 2009

The Federal Reserve wants to regulate bankers’ compensation under a
sweeping proposal that would move the final decision from the boardroom
to a bureaucrat’s desk.

The Fed says it wants to discourage bank executives from taking too
much risk by giving regulators the power to reject compensation
policies, especially among the nation’s 25 largest banks.

Compensation decisions are traditionally reserved for members of banks' corporate boards.

A local banking expert thinks the Fed’s plan is misguided.

“The Fed’s proposal to regulate compensation is another nail in the
coffin of independence of the Federal Reserve,” says Stuart Greenbaum,
former dean and professor emeritus at Washington University’s Olin
Business School. “If we are going to regulate bank executives’
compensation, it would be advisable to strip away the Fed’s supervisory
and regulatory functions completely.”

For the regulations to be effective, federal regulators need to
consider total compensation, not just the composition or structure of
pay packages, says Greenbaum, who used to work for the Federal Reserve.

“The Fed’s claim to look at structure only and not total
compensation is misguided in that total compensation has a clear
impact, perhaps even greater than structure, on incentives for risk
taking.”

What do you think? Is the Fed overstepping its bounds or doing what it needs to do to prevent another recession?