The Compensation Hustle

Mid-June saw Executive Compensation Week here in Washington. On June 11 the House Financial Services Committee convened a hearing on Compensation Structure and Systemic Risk, just one day after the administration announced that attorney Ken Feinberg (lately of the September 11th Victim Compensation Fund) would serve as the "Special Master" overseeing executive compensation at firms receiving TARP funds. His vaguely kinky title notwithstanding, early reports suggest Feinberg won't be imposing much discipline on naughty execs. "Our people kind of thought it was a nonevent," a bank executive told the Washington Post.

But all the attention on bonuses for executives at TARP firms obscures a much bigger issue, one touched on but never sufficiently investigated during the hearing: how to recalibrate the share of gains captured by shareholders, executives and workers in the post-crash economy.

So far, there hasn't been much progress on that front. In fact, corporate governance expert Nell Minow says that, counterintuitively, massive future payouts for CEOs are being "spring-loaded" into the system. "They're resetting all their benchmarks and options grants at what they know is a low point," she says, "so that when the market comes back they are going to rise with the market, having done nothing themselves. That's what we saw in the '90s: up to 70 percent [of gains from stock options] are attributable to market gains as a whole, and yet executives argue it's pay for performance."

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