There's so much compensation news coming out of Washington these days; it's a challenging time for us compensation consultants to sort through it all to interpret and determine its' impact on the workplace. Many unanswered questions emerge as to the direct impact of the government's influence and intervention. With yesterday's roll out of the expanded powers for the Fed, we know that the new compensation guidelines will extend to all banks regardless of size or niche, brokerage firms, institutional investors, insurance companies and more.
In Wednesday's WSJ article,"Relief and Resignation on Wall Street" compensation consultant Alan Johnson said this overhaul of financial regulations could extend way beyond the huge banks who were the initial focus and motivators for change. "It's like the Sarbanes-Oxley of compensation," he said.
One of the key directives to recently emerge from new compensation guidelines is that the Corporation's Board of Directors create a separate compensation committee who reports to the Board, not the CEO. Believe it or not, that was how it was structured at many of these firms in the past. When executive pay became public information earlier in this decade, execs were able to exponentially jockey up their pay packages over time.
Recommendations from outside compensation consultants will be encouraged to receive impartial advice and restructure executive pay to reward long-term achievement versus short-term stock price fluctuations. The focus will be on rewarding an appropriate level of risk taken by the executives. There's a lot of buzz now amongst compensation experts regarding the whole issue of risk, including a recent post from our Compensation Cafe Editor, Ann Bares. How does one define and measure an "appropriate" level of risk? That question is now being debated by many compensation pros.
Shareholders somehow will enter into the equation with the intent to control the amount of total rewards executives receive. Executive bonuses in these TARP recipient firms will be controlled by the government, leading some to believe that CEOs at some of these corporations will leave the U.S. to work overseas.
Treasury Secretary Tim Geitner has said that his intent is to have executive pay become more transparent. By bringing shareholders into the equation he wants to publicly embarrass those firms who pay beyond market rates.
It looks like greater job security for compensation and HR professionals to me with more oversight and regulation added to an already enormous load. My first blush is that it's a mixed bag, with more of the same we've come to expect regardless of which party is in power. An attempt to "do something" to react to the financial crises and settle public outrage, but not in a truly meaningful way.
Many blame the Fed for not getting involved earlier to recognize and realize the beginning of the crisis. They argue the Fed failed to diminish the severity of the economic crisis by missing opportunities to effectively regulate the AIG's, Citibanks, and GM's to prevent the meltdown. So of course, many now wonder if the Fed had difficulty in managing the economic meltdown, how will they be able to assume expanded responsibilities?
Do you ever wonder just how many days you work out of the year that are in response to governmental regulations and employment laws? Thanks to this most recent expansion of power, governmental intervention and control, you can add a few more days (maybe weeks, even) to that tally....particularly if you work in the financial services sector.
What do you think? Is this proposed overhaul of financial regulations and expansion of the Federal justified or just more of the same?
Photo courtesy of MyG9 on Flickr
Becky Regan is the founder and President of Regan HR, Inc., a human resources consulting firm specializing in compensation consulting for California employers and purveyor of online HR products. A former Corporate Human Resources Director (10,000+ employees) with more than 25 years of HR work experience in many industries, her team works with private, public and non-profit clients. Becky is passionate about designing HR programs and compensation plans that build organizations.
A compensation committee that reports to the BOD doesn't sound very useful. The Board's job is to represent shareholders, mainly large financial investors who live on short-term gains. And they aren't likely to block executive salary increases, either, because if an executive threatens to leave that could result in rumors of instability, which can also bring share prices down. But I agree that this is a fine opportunity for comp specialists. And I think public sector may have an easier time since pay tends to be fairly regulated anyway. All those years linking compensation grades and pay scales to job profiles and years of service will finally pay off in spades!
Posted by: working girl | 06/19/2009 at 11:41 AM