Letter to the Editor: Curbs on bonuses would simply be an overreaction

Letter to the Editor: Curbs on bonuses would simply be an overreaction

October 05, 2009
Originally published in The Financial Times

Sir, Krishna Guha and Patrick Jenkins report ("US banks face less strict curbs on bonuses", October 1) that the US is not strictly limiting executive compensation. Thank goodness. Such radical regulation of compensation would be an overreaction to the financial crisis.

A National Bureau of Economic Research study by Fahlenbrach-Stulz entitled "Bank CEO Incentive and the Credit Crisis" revealed that neither option compensation, divergent executive incentives nor equity distribution contributed to risky decision-making. While some chief executives certainly misbehaved, bank CEOs generally lost a tremendous amount of wealth in the credit crisis of 2008.

Bank shareholders should decide their own bank CEO compensation schemes based on their unique situations, not government mandates. The conspiratorial notion that most bank CEOs purposely led their companies off a financial cliff for personal profit is flatly contradicted by the facts. Economic fantasy is no substitute for economic reality in these tough times.