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Fed, Shareholders Struggling With 'Unnecessary Tension' Over Executive Pay, Bankers Say

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Apparently company shareholders don't agree with the Federal Reserve about how executives should get paid, according to those executives.

The Federal Advisory Council, a group that includes Citigroup CEO Vikram Pandit and other prominent bankers, told Federal Reserve Chairman Ben Bernanke, among others, that they just don’t understand why the Fed is insisting on guidelines that don't jive with how shareholders think executives should be evaluated.

“There appears to be a growing and, in the Council’s view, unnecessary tension between the incentive compensation goals of the Federal Reserve and those of shareholders” the council said, according to minutes from their May 11 meeting (h/t The Wall Street Journal).

In other words, to hear it these bankers' way, the Fed wants banks to use certain standards to decide how much executives should be paid that are different from the standards shareholders would like to use.

Specifically, they say, shareholders would like to "encourage exceptional effort and corresponding performance," as long as it doesn't encourage bankers to take huge risks with everyone's money, but they believe that their bank will be criticized by the Fed and other regulators if its goals are difficult to meet and reward extremely successful performance.

In the wake of the financial crisis, lawmakers and the public became increasingly concerned with executive compensation at the banks that critics allege brought the economy near collapse. In response, some of the most prominent parts of the Dodd-Frank financial reform legislation aim to place checks on executive compensation and make it more transparent.

In recent months, shareholders at some big companies have also recently become concerned with the amount the executives at their companies are being paid. Citigroup’s shareholders knocked down the bank’s pay plan in April and shareholders at some regional banks followed suit shortly after.

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