Restoring American Financial Stability Act of 2009: The Need for Comprehensive Reform

The WSJ carried a story about five officials at AIG (two of whom later changed their minds) threatening to resign if the Pay Czar significantly cut their compensation. 

The Pay Czar is cutting compensation and requiring larger portions to be paid in stock rather than cash.  But talking about "cuts" in the total value of the compensation package is relative.  The executives suffering the "cuts" are not reduced to paupers.  When the co-head of global markets at Citigroup received a significant cut in compensation from the year before, he still ended up with a package valued at $8.6 million.

Nonetheless, the "threat" shows the consequence of selective efforts to restrain compensation.  The Pay Czar has oversight of only seven companies.  One (BofA) has announced an intention to get out from his oversight by paying back the TARP money.  Those companies that remain subject to Feinberg's oversight are at a disadvantage in the compensation that can be offered top officials.

One solution is to eliminate the remaining restrictions on compensation and let the seven companies subject to the Pay Czar pay Goldman Sachs levels of compensation.  Another solution would be to impose comprehensive restrictions on compensation so that all companies (not just the seven) had to pay reasonable amounts.