After the debate, bank execs are making more

COMMENTARY

By Rachel Beck

updated 1:01 p.m. ET Aug. 16, 2009

NEW YORK - The scrutiny of executive pay in Washington isn't knocking down the compensation of banks' head honchos. It's just changing what form the money comes in.

Just look at Wells Fargo & Co.'s recently altered pay plan. Earlier this month, the San Francisco bank raised CEO John Stumpf's salary to $5.6 million, through a mix of cash and stock. That's more than six times his salary last year.

The generous bump doesn't violate any rules Wells Fargo is bound by under the Treasury Department's Troubled Asset Relief Program, which doled out $25 billion to the bank last fall to shore up its capital base. That's because the new pay scheme doesn't include a bonus, just a guaranteed higher salary.

But the move stretches what's allowed to its limits. It's that tactic the Obama administration's new pay czar Kenneth Feinberg has to be on the lookout for in the coming months as he reviews the compensation plans of seven companies that have received "exceptional assistance" from the government. Feinberg received the pay information over the last week, and his findings due in October are expected to be a blueprint for pay programs throughout the financial industry.

Wells Fargo isn't one of the companies on Feinberg's to-do list, but it well illustrates the struggle to determine what is "fair" pay in today's corporate world.

"There is no denying that some of these executives have really hard jobs," said J. Robert Brown, a professor of business law and corporate governance at the University of Denver. "But there is another element to all this over what is politically acceptable."

Soaring bonus payouts to financial service company executives tied to short-term results clearly played a role in the financial crisis. In recent years, 80 percent to 90 percent of executive compensation was driven solely by annual performance, according to compensation consultant David Wise of the Hay Group.

That led to excessive risk-taking, which ultimately backfired and resulted in losses so large that the government had to step in with multiple rescue plans.

Congress and the White House have been wrangling over how to shift the compensation paradigm. The House on July 31 voted to prohibit pay and bonus packages that encourage bankers and traders to take risks so big they could bring down the entire economy.

The Obama administration has proposed giving shareholders at all public companies a nonbinding vote on compensation packages. In addition, it wants to diminish management's influence on pay decisions by banning members of board compensation committees from having financial relationships with the company and its executives.

Feinberg is the first federal official to have veto power over the how much private-sector executives are to be compensated. Included in his review are pay plans submitted by American International Group, Citigroup, Bank of America, General Motors, Chrysler and the financing arms of the two automakers.

All this political intervention isn't intended to drag down executive pay to nothing. In fact, financial companies will continue to pay sums to executives that will likely astonish average workers.

MORE FROM REINVENTING AMERICA

Reinventing America Section Front

Great Recession transforms the workplace As fees rise, airlines test flier limits Census: Americans hit hard by downturn How one family eliminated $106,000 of debt Credit crunch creates a delicate balancing act Urgency for new financial rules is slipping away Frugality is the new normal, by necessity For class of 2009, degree doesn’t mean a job NYT: Rise of the super-rich hits sobering wall Frustration rising over mortgage relief Reinventing America Section Front   Add Reinventing America headlines to your news reader: