Tag: Executive compensation

In this AEI Events Podcast, AEI’s Peter J. Wallison welcomes Sanjai Bhagat of the University of Colorado Leeds School of Business to discuss Dr. Bhagat’s new book, Financial Crisis, Corporate Governance, and Bank Capital (Cambridge University Press, March 2017).

Dr. Bhagat emphasizes the Dodd-Frank Act’s costs to the US economy and highlights that, despite its stated intentions to eliminate “too big to fail,” investors and economic policymakers still believe that banks are still too big to fail. To address systemic risk and prevent a future financial crisis, bank executive compensation needs to be addressed. To this end, Dr. Bhagat emphasizes the importance of aligning management incentive with sound financial practices, and he suggests restructuring bank executive and director incentive program to include only restricted stock and restricted stock options with long vesting periods. He also underlines the importance of financing banks with considerably more equity. He clarifies that the 2007–08 financial crisis was not exacerbated by misalignment of corporate management incentive, but that this misalignment exacerbated the financial crisis.

The SEC’s New CEO Pay Rule Is Useless and Dishonest

 

To match Special Report SEC/INVESTIGATIONSA party line, three Democrats vs. two Republicans vote of SEC commissioners has finalized a rule that will require companies to disclose the ratio of the compensation of their CEOs to the median compensation of their employees. This rule is required under the 2010 Dodd-Frank financial regulation law.

Like most progressive policies, this sounds good on its face to most people. “No more fat cats! No more too big to fail!” chants the collective liberal media and political establishment. But, again like most progressive policies, it’s not quite so simple.

People naturally grumble at the idea of some CEO making millions and millions of dollars each year while some employees at their given company are making minimum wage. This makes the idea behind the SEC’s new ratio rule politically popular and an easy sell. The problem is that proper perspective isn’t applied to the issue of CEO compensation. Let’s address a few key points that explain why CEOs are compensated so handsomely in many cases.