Good grief. Is that plain old common sense hovering over Washington DC? Yes, and it is the lesser-spotted populist genus – a rare specimen indeed. The US Treasury’s latest thoughts on reforming executive compensation acknowledge that this issue is broader than banking. Out go caps on pay and prescriptive restrictions. Instead, we have broad principles for public companies on performance-based pay and managing risk, plus the prospect of legislation on compensation committees and a greater say for shareholders.

This is refreshing stuff after the counterproductive hysteria earlier this year. The sting in the tail is the appointment of a “special master” with powers to reject pay plans from companies receiving exceptional assistance from the government. Harsher oversight here was inevitable. That the pay autocrat – sorry, tsar – should examine the top 100 salaried employees at seven companies, however, takes this outside influence deep into companies’ hierarchy, well beyond the executive suite. Bog-standard recipients of federal aid must live with rules – such as limits on bonus size – added to the stimulus bill. But at least they maintain some flexibility to raise salaries while rushing to get out from under Uncle Sam’s thumb.

The administration, then, has plumped for a sensible if pretty incontrovertible approach. Who, for example, would argue against aligning pay with sound risk management? The dim view of egregiously large severance packages and retirement perks is welcome. But remember that independent pay committees and shareholder votes on packages are norms elsewhere, including the UK, and failed to mitigate the crisis. It is fiendishly difficult to structure compensation in advance that accounts, say, for the uncertain time horizon and payback of risk. Creative thinking, then, plus a greater willingness by shareholders to exercise their powers of protest will be needed to prevent this bird emerging as a dead duck.

To e-mail the Lex team confidentially click here
To post public comments click here

The Lex column is now on Twitter. To receive our daily line-up and links to Lex notes via Twitter, click here


Lex is the FT’s agenda-setting column, giving an authoritative view on corporate and financial matters. It is also one of the few parts of available only to Premium subscribers. This article is provided for free as an example. A Premium subscription gives you unlimited access to all FT content, including all Lex articles and the FT mobile Newsreader.

Subscribe now

If you have questions or comments, please e-mail or call:

US and Canada: +1 800 628 8088
Asia: +852 2905 5555
UK, Europe and rest of the world: +44 (0)20 7775 6248

Get alerts on Americas when a new story is published

Copyright The Financial Times Limited 2021. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section

Comments have not been enabled for this article.