Furthermore, the article argues that shortage of good executives would drive pay up even further in the future. The top 250 executives do not have a big difference in talent; it's merely a case of the size of the company these executives run. Also, Lucian Bebchuk argues that pay is not parallel to performance or productivity, and that CEO's take great care to hide their true compensation.
The practices of the bankers brought the financial system on the brink of collapse. After help from taxpayer dollars, the financial system is getting back to normal and paychecks are reaching are in line with financial recovery. These are times of rising unemployment and executives are using all forms of power within their reach to stop any reforms from the government. Is the U.S. government ready to take on the bankers just yet Mr. Summers criticized the U.S. Chamber of Commerce and their campaign of forming an agency to protect consumers against financial abuses. But apart from this, a major change in the way executives are paid is required. Executives are paid huge amounts when they deliver short term profits, but they aren't punished when their short term decisions turn into long-term barriers for growth and profit. They walk away with their rewards, leaving their corporation in trouble and hence, pushing the financial system into rubble. The Fed wants to enact laws which would decrease executive salaries if banks face losses, and it would make it compulsory for banks to link pay with long term results rather than short term. The administration's stance on reforming pay structure is not just a populist stance, but also good politics and good economics.
Outline II-Economic Analysis
A Contrarian Look at Whether U.S. Chief Executives Are Overpaid
According to this article, CEO Pay is measured by the increase or decrease in the stock value of the company. In the past two decades, pay has increased in line with increases in the market capitalization of corporations. The writer is off the opinion that increases in stock value is a sign that economic decisions made by the executives are quality ones, and hence, they deserve high pay. Another argument that they present is the fact that the number of companies is more relative to the number of good executives. Therefore, an executive or CEO who worked for a big company would easily get a CEO position in another company and get paid high salary. Part of the reason for this is the shortage of CEO's in the United States. Perhaps, the demand and supply in other countries is at a better equilibrium and this has resulted in lower relative salaries. The advocates of reformed pay structure argue that high pay is correlated to bad governance and is not related to productivity.
Reform or Bust
This article points out that since executives are not punished when their corporation faces loss, but given rewards when their decisions cause short term profits, it facilitates excessive risk taking on part of the executives. Executives take risk because there is no accountability. Furthermore, the author of the article says that the Fed is considering making it compulsory for banks to link pay with long term performance. This would make CEO's more accountable and would urge them to try their best