Bank CEO Pay Restrictions

Tyler Cowen says it’s hard to really think of a practical way to control the compensation of bank executives. And on one level, I’m sure it is. But lots of things are hard. And I don’t genuinely believe that the reason we allow these obscene levels of compensation is that the top people are putting time and effort into this problem but it turns out to be just too dang hard.

One thing to keep in mind is that norms and pure positional competition seem to play a large role here. European executives are well-paid, but not nearly as well-paid as American executives, and the main reason seems to be that that’s just how it is and there’s a path-dependence to it. So measures to curb socially destructive levels of compensation don’t necessarily need to be airtight to be effective. What would be needed would be some consistency of purpose from the top to try to shift the norms and incentives and so forth in steady ways over time and get you into a new equilibrium.