Bankers by now are pretty much resigned to suffering the punitive consequences of the great meltdown. Capital, liquidity and leverage requirements will tighten, some trading activities will be constrained, and prudential supervision will ratchet up. But for some executives, the postcrisis scrutiny of — and potential restrictions on — how they are compensated still stings.
While they may be ready to accept and comply with, for example, the U.S. Dodd-Frank Act’s shareholder “say on pay” provisions, and with even further-reaching U.K. and European rules and guidelines that are to take effect soon, high-ranking financial industry executives bristle at government intervention in an aspect of their jobs that they have always regarded as a free-market prerogative.
The distortions and excesses of the recent bubble are undeniable. “Conflicts of interest and the way CEOs are compensated are at the heart of this financial catastrophe that has wiped out trillions of dollars in assets and millions of jobs,” Hershey Friedman, professor of business and marketing at Brooklyn College, and Linda Friedman, professor of statistics and computer information systems at the Graduate Center of the City University of New York, wrote in the summer 2010 issue of the Capco Institute’s Journal of Financial Transformation. The prevailing ethic was “as long as there was money to be made, virtually no one said anything” about downside risks in the housing market, the collapse of which reverberated disastrously around the world. ....