Barney Frank wants to stiffen limits on Wall Street compensation, calling for a ban on bonuses that would apply to “all firms.”
“There should be a moratorium on bonuses,” Frank said yesterday, according to Bloomberg. “They have a negative incentive effect because they are the ones that say if you take a risk and it pays off you get a big bonus…and if it causes losses…you don’t lose anything.”
The Congressman’s remarks go much further than anything enacted so far. The current rules, included in the bailout legislation, would increase the tax burden for companies receiving government aid that pay more than $500,000 to top executives and would require board’s to consider whether an executives compensation package encourages excess risk.
Frank seems to be calling for an outright ban on bonuses to anyone, not just top executives. This would devastate Wall Street, where most of the annual compensation is paid out in bonuses. It would also create economic havoc in New York, where the state and city governments and local businesses are already preparing to get hit from much lower bonuses.
This is most likely just political posturing. A general bonus moratorium would turn Wall Street inside out. Very quickly, most likely, banks would simply structure pay to work on much higher salary levels to avoid any such rules.