Slashing exec pay

THE ISSUE

The federal government cut executive pay and bonuses at companies that taxpayers bailed out in the Wall Street banking crisis.

American taxpayers are outraged, as they should be, that so many Wall Street firms continue to pay millions to their executives while taking government bailout money.

Sensitive to the outrage, leaders at the Treasury Department and the Federal Reserve are reacting with similar approaches.

While it may quell the anger rumbling through barbershops and cafes, the plans are riddled with loopholes that could make them nothing more than symbolic gestures to quiet the gale until the public storm subsides.

The Treasury Department on Thursday ordered seven major companies that haven't repaid their government bailout money to cut their top executives' average salary and bonuses in half. That will limit cash salaries for the top 25 highest-paid executives to $500,000 and cap perks, in most cases, at $25,000.

At the same time, the Federal Reserve proposed to monitor pay packages at thousands of banks, including those that didn't receive bailout money, to make sure they don't encourage reckless gambles.

While these remedies may soothe the masses, don't expect either plan to quench Wall Street's thirst for lavish pay. Any group of people smart enough to run a Wall Street banking firm is smart enough to find and take advantage of the loopholes.

"I think the government is trying to make examples of some banks and hoping others will follow," David Yermack, a finance professor at New York University, told the Associated Press. "I think that's naive."

As to the companies that took bailout money, they should, indeed, be required by law to limit compensation until they repay the money to taxpayers. The companies should only use bonuses as a reward for returning these firms to profitability.

As to the companies that didn't take bailout money, it's questionable whether the Federal Reserve should interfere in their executive pay at all.

Hopefully the boards of all public companies will somehow get the message that, in the end, rewarding failure does not help their companies or their shareholders.

They should tie compensation to the previous year's results and put more accountability measures - and possible penalties - in place to ensure the integrity of their executives and their firms.