The Limits of the Pay Czar

The stories were rampant that the Pay Czar, Kenneth Feinberg, caused Ken Lewis, the departing CEO of BofA to remit about $1 million received so far this year and to forgo the remainder of his salary for the year, $1.5 million.  The Pay Czar is assigned the task of reviewing compensation practices for the largest companies receiving bailout funds. 

There are a few things to note here.  First, it again shows that the only successful way so far to reduce executive compensation is to rely essentially on the heavy hand of the government.  The actions by Lewis were not a product of a board of directors acting in the best interests of shareholders.  They were a product of pressure from the government.  This won't continue forever and it doesn't apply to the vast number of companies and financial institutions not subject to this type of review.

Second, it shows the limits of oversight.  As the WSJ reports, while Ken Lewis is foregoing somewhere around $2.5 million, he does leave with a package valued at $69.3 million.  The amount was apparently severence not subject to the Pay Czar's oversight. 

In the end, compensation requires systematic reform that does not depend upon intrusive oversight by the government.  Yet nothing like that appears likely to emerge in the near term or perhaps at all.