Will They Do It Right?

[Old Dad]

http://www.msnbc.msn.com/id/32915235/ns/business-the_new_york_times/ Regulating pay in the banking industry.

If history is any guide, no, they won't. They'll create some highly complicated conglomeration of regulations that will take a room-full of lawyers and accountants to figure out and apply.

Thing is, in my opinion, it doesn't have to be that way at all - a very sensible and level-headed approach would work just fine and be simple to put into practice. Here's all that's needed: Simply tie all bonuses and pay scales to company performance. They would be computed annually at the same time the books are balanced and the final shareholder dividend is figured for the year end.

If the bank has earned 10% more than it did in the last year, then all bonuses and pay raises would also be set at 10%. Or if profitability fell 5%, there would be NO bonus for anyone (CEO included) and pay rates would be cut by 5% (CEO also included). I see absolutely NO logic in paying people extra for under-performance.

Does it sound harsh since they are at the mercy of "market forces?" Not at all. Part of being a good manager is being able to read the signs of the time in the segment of the industry they are serving.

Those are my opinions - what are yours?

[Requiel]

Year-on-year growth is a horrible way to measure the performance of a company; profits can go down and a company might even post a loss for reasons that are nothing to do with bad governance or executive error. Major acquisitions, infrastructure upgrades and even things like legal settlements can all reduce the profits of a company without being a sign that the board has failed. Companies already have a legal obligation to act in the best interests of their shareholders and, it's those shareholders that normally determine whether the board is doing a good job. All that tying remuneration packages to profits will do is give executives a strong personal reason to reduce investments so that the books are as rosy as possible when the AGM rolls around. That's pretty much the attitude that's got us into the current mess - too much personal incentive to make short-term profits at the expense of long-term growth.