Academic

Like Usha, I have been trying to puzzle through what the executive compensation provision of the new bailout/rescue bill really means and how it will work in practice.  Although part of the problem may be that its precise contours continue to evolve.  Indeed, in an interview with CNBC tonight, Barney Frank, chair of the House Financial Services Committee, indicated that while there would be no dollar limits on executive compensation, he was fighting hard to make sure that the bill would at least ensure that shareholders get a say on pay and that there would absolutely be no golden parachutes.  To be sure, these are the kinds of provisions that long have been advocated by shareholder advocates and the public, but it is not clear if they will serve to curb the kind of rising executive compensation packages that concern many.  Though perhaps people will view it as a step in the right direction. 

And even as I puzzle through these issues, what is not a puzzle to me is the apparent growing consensus that the bill needs to address executive compensation in some manner.  Of course because things are still evolving, it is still possible that the executive compensation issue will not be a part of the legislation.  And yet even Paulson now has indicated that the new legislation must address the executive compensation issue. 

As I mentioned, this kind of growing consensus should not be surprising.  Indeed, as an initial matter, executive compensation has been a hot button issue for some time, especially when it seems like executives are being rewarded while shareholders and tax payers suffer.  So it is little wonder that this would be an issue on the forefront of people's mind.  Second, unlike the complex nature of mortgage-backed securities, credit default swaps, and other financial instruments, it is likely that the public views the executive compensation issue as relatively straightforward, and hence a relatively easy piece of the legislation (or hole in the legislation) upon which to focus their attention.  Third, given how long the business community and other sectors have grappled with how best to curb rising executive pay and prevent inappropriate pay packages, there is no reason to think that the issue would have been addressed post-legislation or otherwise in some other context.  Hence this may have presented the perfect opportunity for those who have long pushed for some federal legislation in this area. 

Again, it is not clear what kind of impact the provisions on executive compensation will have, and it is also not clear that such provisions will even make it into the final bill.  But it does seem clear that the issue of executive compensation and the seeming failure to address that issue resonates with many people, and hence could play a central role in their perception of the validity of the bailout plan.