Regulators Decline To Identify What Counts As 'Inordinately Large' Pay For Execs

Testifying Friday before the House Financial Services Committee, three regulators endowed with new powers by the Dodd-Frank financial reform act outlined their intentions for overseeing executive compensation. But lacking certain key details, their message seemed simply: trust us.

Federal Reserve general counsel Scott Alvarez, SEC director of corporate finance Meredith Cross and FDIC associate director of insurance and research Marc Steckel each gave testimony at the hearing, which was broadcast on the web. They argued executive pay at some of America's biggest companies is tied to risk, and that companies should strive to align the interests of executives with those of the company. The presentation was largely consistent with former pay czar Kenneth Feinberg's proposals last year.

The Dodd-Frank financial reform gives regulators the power to write rules governing executive compensation. Cross said the SEC will release its rules by next summer. But, judging by the three witnesses' presentation, that process seems to be still in its preliminary stages. The witnesses discussed various reform strategies, such as a structured deferral of compensation, but for the most part, the discussion was general.

When pressed on specifics, the witnesses had trouble responding. Alvarez said regulators would not put caps on executive salaries or mandate specific dollar amounts. He said that's not the Federal Reserve's area of expertise, adding, "That's up to the company itself."

Rep. Leonard Lance (R-N.J.) asked the witnesses to name a specific maximum for executive compensation, to say how much would be "inordinately large." But none would give a dollar amount. "I would be reluctant to do that," Steckel said.

"It's very nuanced," Alvarez said. "There is no number."

Cross had a similar answer, saying the limit is when "the risks to the institution outweigh the rewards to the institution."

Granted, different companies will have different definitions of "inordinately large." But Rep. Alexander Green (D-Tx.) said a discussion about executive compensation cannot be divorced from numbers. "If we don't talk about the amount of the compensation, we don't really get an understanding of why people would do these things," he said. "The systemic risk is created by persons who make hundreds of dollars per second."

Rep. Patrick McHenry (R-N.C.) expressed frustration with the vagueness of the proceedings. When he asked the witnesses how they would regulate multinational corporations, Cross said the SEC would draft rules and release them next summer. McHenry wasn't satisfied.

"Basically you're telling me you'll do what you normally do," he said. "Which is you'll get input and you'll make a rule."

Comments

[Monty Lambie]

11:43 AM on 10/09/2010

How about a ratio that's substantially lower than 400-500 what the average worker in the company makes to set executive pay? That might enable companies to pay a 'living' wage to workers.

[stormkrow]

08:40 PM on 10/08/2010

Cross had a similar answer, saying the limit is when "the risks to the institution outweigh the rewards to the institution."

Risk? Like when a soldier ($18,410.40) is about to do battle? Or how about when a firefighter ($32,021.04) dives into a burning building? That kind of risk? Or maybe a cop ($36,063.71) in Chicago type risk? You know the kind of risk where you DIE?

How about now CEO can make more than the president of the US?

In 1976 the disparity in pay from the least to highest salaried person was 26 to 1.
Today it's 400 to 1.

TERM LIMITS!!

[pjwrites]

05:17 PM on 09/27/2010

Similar to the way the regulators decline to say what actually amounts to a crime.

The courts in this country have been captured by criminals, with new business laws dictating that the only winner will be the guy who manages to get the money, by hook or by crook.

All hail the money. It's every man for himself.

[lvdragonlady]

07:45 PM on 09/26/2010

I can give you a number, 1 million dollars. There is not a human alive that is worth a penny of that amount. NONE.

[cgeorgan]

03:38 PM on 09/27/2010

You sound like a small thinker.

[Ragnar Danneskjold]

03:46 PM on 09/27/2010

You must hate all Pro athletes, Hollywood stars, Obama (who made 6 million last year) and just about every leftist trial attorney worth his salt.

[The hard truth]

04:04 PM on 09/27/2010

Pro athletes that conduct their business is state/municipally funded arenas. How about musicians that perform in those same state funded arenas?

[iridium53]

05:50 PM on 09/26/2010

The Dodd-Frank bill will, I suspect, leave us with no real regulations because Regulators won't have to define anything.

The Dodd-Frank bill, just as Obama wanted, doesn't prevent "too big to fail" and gives regulators free rein to give the big banks anything they want.

Once Repugnantones take charge, this bill will prove to be the worst financial bill ever passed.

[BlueSkyPilot]

08:20 AM on 09/26/2010

How about a Ball Park Figure? $4,380,000. That's $500 dollars an hour 24 hours a day for a year.

[TrickledOn]

01:49 AM on 09/26/2010

I say forget about regulating their pay, raise the top tax rate to 91% and let them make as much as they can.

[schatsie]

11:25 AM on 09/26/2010

I really am totally in favor of that and Taking the Cap off Wages subject to the Regressive SS tax...specially when you know that the poorest 1/5 is 3.5 times more likely to die in middle age than the richest 1/5....and Put a Cap on Preferential Tax Treatments like Capital Gains and a Cap on Business Expenses....Once you have spent 1 million on business expenses, no more, those expenses are rolled into INCOME.....

[TrickledOn]

11:52 AM on 09/26/2010

I hear your point, but at the same time wonder if a "cap" on business expenses would be the right angle to attack the problem from. If you limit business expenses you are also limiting how much the honest businesses could reinvest in themselves to create much needed jobs. How about giving the IRS or a third party veto rights on the expenses instead, then they could reject claims that are exploiting and still allow the honest investment in our economy that is much needed.

[schatsie]

11:25 AM on 09/26/2010

That is business expenses of 1 million per person per lifetime,,,,,Warren and Billy are spitting now....

[Firbolg]

01:43 AM on 09/26/2010

Meanwhile, in the basement of the Fed, Elizabeth Warren toils long into the night with a mug full of colored highlighters, editing mortgage paperwork.
We are truly doomed.

[schatsie]

12:17 AM on 09/26/2010

Wow, there is a simple answer, it is the amount of inheritance that would not be taxed or 3.5 million..... We all know that there is less than .1% of the estates each year that exceed this cap...so that should be good enough....ALSO with the news coming out about the FRAUD, they should only be paid in stock, no more cash.....then they can share the pain with the shareholders when the fraud convictions start rolling in instead of protecting their personal assets that devolved from the fraud....(RICO)

[FiscalConservativesUnite]

11:02 PM on 09/25/2010

H.R. 833. Just abolish the fed.

[astraia]

10:33 PM on 09/25/2010

"it's very nuanced"

lol, yeah, so was regulating those toxic "assets" that virtually brought the economy to its knees?

i'm pretty sure there's someone out there smart enough to devise a formula to determine what might be "inordinately large" pay..

[onionboy]

10:05 PM on 09/25/2010

A dollar amount shouldn't be set. It should be base on a multiple of the minimum wage (assuming full-time employment). That way if they want to raise their salary above any limits set, they have to raise up the bottom first.

[PartOfTheSolution]

01:00 AM on 09/26/2010

Best idea I've heard this week.

[DrObvious]

09:57 PM on 09/25/2010

how many posters have said, re how much is too much?

don't know - but it's like porn - I'll know it when i see it

[zlohcuc]

09:54 PM on 09/25/2010

"It's very nuanced," Alvarez said. "There is no number."

Of course not- that would mean adhering to some defined standard and minimizing the ability of these professional con artists to make their own unknowable and unenforceble rules.The more you listen, the more obvious it becomes you are either a part of it or not-millions ofg us are not.

[astraia]

10:34 PM on 09/25/2010

or, in the infamous words of rummy>> "it's an unknown unknown.."

[zlohcuc]

12:53 AM on 09/26/2010

an all time classic...

[ibsteve2u]

09:42 PM on 09/25/2010

That one is easy: CEO and Wall Street pay is simply going to go up, up, up and up until the tax structure is reformed to penalize excessive greed.

The American people have no future for as long as there is no penalty for cutting them out of America's economy; there is no moral or ethical principle sufficient to cause the people the Republicans represent to "share"; as evidence, I remind you that they call sharing "wealth redistribution".

They further demand the right to determine the value of all work performed to make them a profit, and when - Surprise!" - they value it at next to nothing, they insist that as it is their capital "at risk", they and they alone are entitled to any and all rewards regardless of their minimal or null input.

In the final analysis, America's few - those who are so ably represented by the Republicans - do not care if they destroy America entirely; not one whit...their paper wealth is all to them.

[muhair]

11:45 PM on 09/25/2010

You got it. Let them make all they want and tax everything over $1M @ 80%.