Compensation consultants say that limiting executive pay at TARP-recipient banks will make the banks less competitive. They argue that nobody worth their (market) weight in gold wants to work for a bank where the only bonus beyond a half-million-dollar salary is restricted stock options that can’t be cashed in until taxpayers get their due. They may be right, though the market for pricey financial whiz kids and rocket scientists is hardly a rich one these days.
Whenever Uncle Sam steps in as lender of last resort, taxpayers had better concern themselves with the concept of Moral Hazard: that banks can invest recklessly because they know they will get bailed out in the end. The $500,000 pay cap is, in effect, a Moral Hazard roadblock, raising the cost of a bailout for would-be Wall Street gamblers.
But neither side in this argument should get too excited. With nearly $300 billion of TARP funds already out of the bag, and the new compensation rules applying only to future TARP tappings, most of the best executives (such as John Thain’s crew at TARP-funded takeover disaster Merrill Lynch) have already been paid off.
At this point, perhaps the best that free marketers and taxpayers alike can hope for is that executives of submerged financial institutions opt for the failure they have earned rather than a taxpayer lifeline.
Other Deals News:
* China Investment Corp, a $200 billion sovereign wealth fund, and state-owned China Development Bank are both in talks to buy into CITIC Capital Holdings Ltd, an official newspaper said.