U.S. regulators proposed new laws on Thursday to reconstruct the way Wall Street executives are paid. The new rules are intended to stop executives from making risky financial bets to boost their pay and then collect large bonuses before the fallout is clear. The proposal is coming at a time when Bernie Sanders presidential campaign calls to break up big banks. Under the proposed laws, the nation’s largest banks would have up to 7 years to draw back executives bonuses if their actions hurt the institution. In addition, instead of handing an executive their bonus in one year, their bonus payment would be spread out through 4 years. The Dodd-Frank Act was pasted in 2010 to initially limit pay and bonuses given to top executives at financial institutions. However, critics said the Dodd-Frank Act was weak, observing it did not address compensation of traders who can potentially draw the largest bonuses. The new proposed laws are ‘slightly’ stronger but still leave the industry with some wiggle room. This is coming in light of the Financial Crisis when AIG took a taxpayer funded lifeline of more than $100 billion, but was setting aside millions of dollars for employee bonuses and retention pay. Wall Street has become stingier with bonuses and the average bonus tumbled by 9% last year. However, bonuses at head funds and private equity firms can still reach millions of dollars a year. JPMorgan Chase boosted its chief executive, Jamie Dimon, by 35% last year to $27 million. The National Credit Union Administration approved the executive compensation rules Thursday, but 5 more agencies still need to act before they become binding.
https://www.washingtonpost.com/business/economy/regulators-introduce-new-rules-to-curb-wall-street-pay/2016/04/21/4a8ae25c-07cf-11e6-b283-e79d81c63c1b_story.html
I think it's a very good way to make sure Wall Street executives to think twice and more insightfully before they make risky moves. Especially important to those businesses that are mainly deal with investing (with other people's retirement funds). Because now, they can not boost their earnings by implementing short-term beneficial reactions anymore.
ReplyDeleteThe compensation for Wall Street executives has been a huge point of discussion and disagreement ever since 2008. This topic was brought to light in 2008 when the entire economy was tanking and in a whirlwind, yet we still saw top executives receiving huge bonuses regardless of performance. I think this is a step in the right direction as after 2008, more bonuses were tied to actual performance of the firm. This is just another step to make the bonus system fair for all involved.
ReplyDeleteThe intervention of this new rule to help prevent executives from actions that could hurt the institutions is a much needed law. However, this article doesn't do a good job of explaining why its bad that executives receive large bonuses. Why is a company rewarding its hard workers a bad thing, just because its a large amount of money? The fail in the financial crisis was spurred by people trying to make money but it wasn't the whole institution, the bill doesn't specify the minimum amount a bonus should be before it is spread over 4 years. Do secretaries have to have their bonus' divided into four years? They didn't cause the financial crisis.
ReplyDeleteWhat Bernie Sanders states a lot, in that the most of Americas money lies with the top 1% is a frightening fact, and Im glad that the US regulators are finally looking into this.
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