Congress Gets Punitive on Executive Pay

In a last-minute addition to the stimulus bill passed Friday, Congress imposed tight restrictions on pay arrangements in all financial firms that have or will receive funds from the federal government’s Troubled Asset Relief Program (TARP).

While I have long been a critic of corporate compensation practices, these restrictions leave me concerned. They weaken executives’ incentives to deliver the long-term performance that is needed to benefit banks, the economy, and taxpayers who have injected vast amounts of capital into these institutions.

The Administration’s Executive Pay Guidelines

(Editor’s Note: This post is based on an op-ed piece by Lucian Bebchuk in today’s Wall Street Journal.)

Critics of the administration’s proposed guidelines on executive compensation say they are a dangerous intrusion into corporate boards’ authority and would make it difficult for financial firms to fill executive positions. These criticisms are unwarranted. If anything, the guidelines are too modest and should be tightened.