Democrats Need To Wake Up and Regulate CEO Pay

A report [1] released by New York Attorney General Andrew Cuomo sheds light on big bank practices that have to be reined in: doling out huge bonuses while profits plummeted. According to the Cuomo report, the nine major banks, while taking $175 billion [2] in bailout money, doled out $32 billion in bonuses—despite taking net losses of nearly $81 billion. [2]

Is it just me, but aren't bonuses supposed to be given out when you do good work? In fact, if you gave someone a bonus for doing a bad job, wouldn't that just encourage them to do a bad job in the future?

Paying people outrageous benefits has a perverse incentive on the Wall Street executives to do what's in regular people's best interest. CEO's that receive multimillion dollars bonuses no matter how their companies perform, have little personal incentive to make safe bets on behalf of their share owners. They will not ask tough questions of their superiors about the decisions they are making since it could jeopardize their ability to get extraordinarily wealthy. Why should a banker care about how risky their decisions are if in the end they are taken care of

As financial expert Rich Feralauto of AFSCME says,

"Current corporate pay policies reward executives regardless of if their companies’ performance contributed to our current economic crisis. It’s time to reform the way these banks structure their pay. American investors have been clear that they want shareholders to have a larger say in the pay of top executives. It is more important than ever for Congress take action on compensation reform by passing “say on pay” legislation for all companies and to make it permanent as the center piece of needed reforms to encourage executive accountability."

Earlier this week the House Financial Services Committee passed a bill regulating executive compensation.The legislation would give shareholders a “say on pay” for top executives and ensure that they have a nonbinding, advisory vote on their company’s pay practices. The bill would require federal regulators to proscribe inappropriate or imprudently risky compensation practices as part of solvency regulation of all financial institutions, and all financial firms would be required to disclose any compensation structures that include incentive-based elements.

The White House, while supportive of the measure allowing non-binding resolutions on executive compensation by stockholders, is opposed to giving regulators the power to ban bonuses that promote risky behavior. Speaking yesterday at a press conference, Robert Gibbs said that the administration is concerned the measure may give regulators too much say on incentive pay [2].

It's time for Democrats to wake up. Unemployment is at near double digits, people are losing their homes, and trillion of dollars in people's retirement savings have been eliminated—all as a result of gambling on Wall Street. The country is calling for reform and if the Democratic Party stands in the way, the country will merely throw the Democratic Party overboard in the next election. It's time for Democrats to take on the Golden Parachutes Brigade of Wall Street.