Why Obama's Draconian Pay Limits for Bankers Are Unwise

Leading bankers, notably Jamie Dimon CEO of JPMorgan Chase & Co., are not happy with the Obama Administration's upcoming rules that could limit bank chiefs to compensation of about $500,000. It is easy to understand why.

President Barack Obama's team is expected to announce later today possibly-draconian executive compensation limits in the runup to what is expected to be a revamp next week of the $700 billion Troubled Asset Relief Program (TARP) that is supposed to prop up the sagging banking system.

It is uncertain if the admininistration wants to limit pay to $500,000 to all banking executives participating in TARP or just to "exceptional" companies on the brink of collapse.

Even so, a half a million is pin money compared with 2007 payouts of $20 million to Kenneth Lewis, Bank of America CEO, or $3.1 million to Citigroup CEO Vikram Pandit who became chief executive in December 2007 and had held other top level jobs. Indeed, $500,000 is about what a highly-paid surgeon or orthodontist makes. CEOs of much smaller firms routinely make $1 or $2 million a year.

"It's unfair to talk about us as one," complains Dimon, who got $1 million last year without bonus.
One argument that actually makes sense is that limits of a half a million dollars are likely to dissaude talented executives from wanting to take on extremely risky jobs of turning around floundering banks. Needed are capable people, but not necessarily entirely selfless ones.

To be sure, there's been plenty of hubris to go around with Merrill Lynch executives getting last-minute bonuses, American International Group toasting their federal rescue with mega-parties and Well Fargo brass getting caught on a Las Vegas getaway.

Some punishment is in order but the Obama group should be thinking longer term about how to rescue the banking system. To do it, it needs Lone Rangers who are fairly compensated.