The Sunshine Report

Two nights ago I was watch­ing busi­ness TV news when one of the jour­nal­ists started explain­ing to view­ers why the Obama admin­is­tra­tion shouldn’t reg­u­late bank employee com­pen­sa­tion. I haven’t been able to get the jour­nal­ists com­ments out of my mind since the show. And, I keep on think­ing of the moral of an Aesop fable titled The Ass In The Lion’s Skin.

With great author­ity the “jour­nal­ist” said that the Obama admin­is­tra­tion had no busi­ness fool­ing with bank com­pen­sa­tion because if a bank fails, share­hold­ers will lose money, just like in any other busi­nesses. And since the gov­ern­ment doesn’t reg­u­late com­pen­sa­tion of other busi­nesses it shouldn’t reg­u­late bank­ing compensation.

After I stopped scream­ing at the TV (which proved to my 18 year old son who wit­nessed my melt­down that I am as crazy as he thinks) I explained to him that when peo­ple watch TV news pro­grams actual “news and facts” should be dis­cussed and that view­ers should be a lit­tle smarter and bet­ter informed because they watch. I told him that it’s wrong if view­ers are dumber after watch­ing TV news. Then I gave him a lec­ture about why he needs to work harder in school or he will end up like the bub­ble head on TV (I think that par­ents all around the world always take any oppor­tu­nity to tell their kids that they need to work harder and this was a great oppor­tu­nity for a lecture).

I couldn’t believe that the dis­tin­guished net­work busi­ness jour­nal­ist for­got to men­tion to view­ers that for the last 75 years since the Fed­eral Deposit Insur­ance Cor­po­ra­tion was formed, when banks fail tax­pay­ers typ­i­cally lose a lot more money than share­hold­ers. A big fact that missed the keen research eye of the TV jour­nal­ist was that in the 1930’s Con­gress passed a bunch of laws that require the FDIC and other bank reg­u­la­tors to stip­u­late bank employee com­pen­sa­tion guide­lines and make sure that com­pen­sa­tion isn’t either exces­sive or inap­pro­pri­ate. And, these rules apply to all banks, not just TARP banks.

The statutes that man­date Fed­eral reg­u­la­tion of bank employee com­pen­sa­tion can be accessed through this link. For those who don’t want to read a long bor­ing statute, a key short bor­ing excerpt is below.

I am sure that by now every reader has noticed that the statute man­dates that the FDIC and every other Fed­eral Bank­ing Agency reg­u­late bank compensation.

I believe in the rule of law and when some­thing is man­dated by Con­gress I expect that the Exec­u­tive Branch will try to enforce the law. Appar­ently, the bub­ble head TV jour­nal­ist on Mon­day night either didn’t take the time to research the topic or pref­ered to ignore facts. Or, maybe they don’t think that the Pres­i­dent of the United States should try to com­ply with laws passed by Congress.

Yes­ter­day Sec­re­tary Gei­th­ner announced that the Admin­is­tra­tion will pur­sue an agenda of mak­ing sure that share­hold­ers have a say the pay of exec­u­tives of pub­lic com­pa­nies and that the com­pen­sa­tion com­mit­tees of, and con­sul­tants to, pub­lic com­pa­nies are inde­pen­dent of man­age­ment. Within min­utes this cre­ated a new firestorm of media crit­i­cism com­plete with alle­ga­tions that the Obama admin­is­tra­tion is inter­ested in social engi­neer­ing and indus­trial policy.

I have a dif­fer­ent view.

I can’t believe that any­one thinks it is a good idea for share­hold­ers (who after all are the own­ers of pub­lic com­pa­nies) not to have a say on com­pen­sa­tion and leg­is­la­tion that empow­ers share­hold­ers should be enacted imme­di­ately. And, I am amazed that com­pen­sa­tion com­mit­tees are allowed to have con­flicts or rely upon com­pen­sa­tion con­sul­tants that are in the pocket of man­age­ment. Most com­pa­nies don’t have this con­flict of inter­est. How­ever, it isn’t good enough that most com­pa­nies try to set com­pen­sa­tion pol­icy in an open and hon­est man­ner. Con­flicts of inter­est, real and appar­ent, shouldn’t exist at any company.

By the way, this link will take you to The Ass In the Lion’s Skin. The moral of that story is

    Fine clothes may dis­guise, but silly words will dis­close a fool.