The Great Debate

–  Patrick R. Dailey is a human resources executive and specialist in executive compensation. The views expressed are his own. –

The Obama administration is moving aggressively to reform executive compensation practices and impose more stringent governance regulations. These policy and regulatory initiatives are a result of the administration’s publicly stated beliefs that the global financial crisis of 2008 was in large part a result of executive compensation programs that were too highly-leveraged and short term, thus providing incentive for operating executives to engage in excessive risk taking – the corporate version of always swinging for the fences.

Without question, all public corporations will soon implement more stringent regulations and practices governing executive compensation.

Significant change is emerging in five areas of executive compensation and its governance.

Compensation Committees will have more clout

The Treasury Department seeks to raise the level of confidence among shareholders regarding executive performance targets and fairness in plan design by “beefing up” authority of the Compensation Committee to act in the interests of long term shareholders. Changes may likely include:

President Barack Obama set a $500,000 annual pay cap on Wednesday for executives at companies getting taxpayer bailouts as part of a wider process to clamp down on excessive corporate pay.

The new rules would require banks and other companies that get government funds in the future to abide by the new cap going forward, with any additional compensation being limited to restricted stock that does not vest until government funds are paid back.

The following are comments from the market on the new plan. Add your own view in the comments section.

– James Saft is a Reuters columnist. The opinions expressed are his own –

Signs are it won’t just be the salaries of bankers coming under fire.

An unusual array of forces are combining to make it very likely that top tier pay may be structurally falling, rather than simply taking a cyclical dip during a downturn.

Take it for granted that pay in the financial sector will fall. A combination of increased government ownership and a shrinking businesses taking fewer risks with other people’s money will see to that.