The U.S. Government is considering taking an active role in setting both financial and non financial companies executive pay. Congressman Barney Frank, Chairman for the Financial Services Committee stated, “the federal government should play a role in setting executive-pay rules for public companies to reduce incentives that lead to excessive risk-taking,” according to Bloomberg. He has said that it is to focus on financial companies but could be a plan that can be implemented for all companies. That is getting way out of hand…right?
Chairman Frank does not believe that the government should take an active role in setting the dollar amount that executives are to be paid, just the rules on how they can get paid. This most recent proposal is in response to the excessive risk that executives of financial companies have been taking to boost their company stock prices. A heavy portion of executive pay is based on the performance of the underlying company’s stock price through grants of restricted stock, incentive and non-qualified stock options and deferred compensation. Inflating their company’s stock price could, and has, resulted in an extraordinary amount of compensation.
Discussions of how to curb executive compensation have been gaining speed with the Obama administration and federal regulators. In the beginning, the initial goal was to limit the bonuses of those companies who received money from the Troubled Asset Relief Program (TARP). It appears now however that President Obama and his team want to take things further to limit the compensation for all financial companies whether or not they received money from the TARP. Congressman Barney Frank has also stated that “the rules should extend to non-financial companies as well,” according to Bloomberg.