Today, President Barack Obama announced that he is “imposing a cap of $500,000 on the compensation of top executives at companies that receive significant federal assistance in the future”:
Any additional compensation will be in restricted stock that won’t vest until taxpayers have been paid back, according to an administration official.
At Naked Capitalism, Yves Smith wrote that there are many “shortcomings of the supposedly tough plan,” noting that there is “no attempt to take measures relative to the funds committed” and the restrictions are limited to the 50 highest-paid members in each institution. These are fair criticisms, but it’s always easiest to say that measures like these could go further. Instead, Obama’s move could be looked at as simply the first step in a wider effort to reel in Wall St. excess.
Also, enforceability has to be considered. The restrictions need to be realistic enough that they are enforceable, and designed so that the government doesn’t spend an inordinate amount of time and resources on the enforcement effort. As Mary Kane wrote at the Washington Independent, “I’m not sure the the corporate world really understands what’s about to hit it. This will be just the beginning of a major overhaul of the financial system.” Indeed, the pay cap is a good down-payment on that transformation.