Government regulation of executive bank pay
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TEXT OF INTERVIEW
STACEY VANEK SMITH: Regulators are reportedly considering making financial firms pay executives partly in stock and other deferred compensation. That's to give execs a stake in the long term health of a company.
Here to talk more about this with us is Juli Niemann, an analyst with Smith, Moore & Company in St. Louis. She joins us live. Good morning, Julie.
JULI NIEMANN: Good morning Stacey.
VANEK SMITH: Juli, how likely is the government to step in and regulate executive bank pay?
NIEMANN: They did it somewhat during the big banking crisis. The Fed basically stepped in and the treasury stepped in, in an attempted to claw back, especially when you have executives who are fudging the numbers. But the new Dodd Frank bill really is not going to give that much control to corporations over what kind of executive pay you're going to have. The biggest problem is there's really no rhyme or reason on how these bonuses are paid. It's supposedly is for the long term health of the corporation, but there's been absolutely no correlation with that. So basically what it is, is it's a disadvantage to shareholders and the question is, are you really getting good bang for the buck here. And there's no evidence here that bonuses really do that.
VANEK SMITH: Bonuses are supposed to be up this year. This that right?
NIEMANN: Right. They're looking on average about 5 percent, so everybody is getting significantly larger bonuses. A few of the larger corporations like Goldman Sacs has tied it to stock options. But stock options intrinsically are hugely disadvantage to the shareholders because they're basically diluting everything that the shareholders have. And there's really no evidence that compensates executives any better or any worse than just plain old cash.
VANEK SMITH: What would be a good way to regulate bonuses, or is there a good way?
NIEMANN: There is, and one of the easiest ways is to get more shareholder influence on the board of directors. They're usually the board of cronies. And they just put in anything that you want the existing management to have. Have them represent shareholders more and give more outside influence and that means the independent outside ones. The other easy one is to not allow corporations to deduct them from their taxable income. As soon as you take that away it becomes less of an incentive in terms a lot of bonuses are paid depending upon how much a company makes. Well that would lower how much a company makes because bonuses especially in the case of some that happened in the middle of the financial crisis was 86 percent of all the TARP money.
VANEK SMITH: Juli Niemann with Smith Moore and Company in St. Louis. Thanks Juli.
NIEMANN: Thank you.