Congress takes aim at Wall St mega-salaries

US politicians are demanding curbs on 'excessive' pay as their price for approving the Fed's $700bn rescue package.

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Last Updated: 31 Aug 2010

For a while there it looked as though the big guns of US finance might be going to get their mitts on all that bail-out dosh whilst keeping their license to pay themselves as much as they want intact. But now Congress is sitting on its hands and calling for a few quid pro quos in return for its legislative co-operation in passing the bill. Amongst them an ‘executive pay provision’ – one such proposal includes giving the US Treasury the power to veto ‘inappropriate or excessive’ payments, and also to force execs to give back bonuses if results have been overstated.

Now, if there’s one thing that bankers, hedgies and other latter-day Gordon Gekko types loathe and despise more than anything, it’s the prospect of politicians, regulators, or anyone else getting in the way of their right to make mega-bucks. So the idea that government snoops might be able to dock their pay must indeed be deeply repugnant. But it seems that the present alternative – potential systemic meltdown – is even worse, as Hank Paulson’s rapid climb-down on the issue demonstrates. Having previously insisted that pay curbs would make his rescue deal much less effective, he yesterday conceded that they would have to be considered.

Republican presidential candidate John McCain went way further, stating that the senior execs of any financial firm that has to be bailed out ‘should not be earning more than a top government official.’ Arbitrary and hard to enforce we can’t help thinking, but that an ostensibly business-friendly candidate should make such a radical pronouncement shows just how violently public sentiment in the US has turned on the former Masters of the Universe.  Even in the birthplace of global capitalism, it seems that greed is no longer good.

But what about pay here in the UK? We’ll have to wait and see. But the mood is clearly changing. Yesterday one of London’s leading private equity barons, EMI owner Guy Hands, admitted that many people in his business were greatly overpaid, and that structural shifts were required to bring salaries to a more reasonable level.

Many financial bosses are clearly hugely overpaid, even in comparison with the pretty big money earned by top execs in other sectors. But it is difficult to see what can be done administratively to stop it. Asking markets to operate without greed is like trying to drive a car with no petrol in it, and Congress would better serve its electorate by demanding more stringent checks and balances elsewhere in the rescue package. The only realistic prospect for a curb in mega-salaries comes from the long-term impact of the financial crisis itself. And that’s a cure that will probably be worse than the disease.

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