Last Updated Aug 4, 2009 3:55 PM EDT
This question is too important to be left up to companies themselves, he writes in the Financial Times.
"Regulation of pay in financial institutions is justified by the very same moral hazard concerns that provide the basis for existing regulation of the sector. Because the failure of such companies imposes costs on taxpayers that shareholders do not internalize, shareholders' interests are served by more risk-taking than is socially desirable. For this reason, financial institutions have long been constrained by a substantial body of rules that restrict private choices with respect to loans, investments and capital reserves."Read Bebchuk's arguments at Regulate Financial Pay to Reduce Risk-taking.
The U.S. isn't alone among world governments addressing this issue. Turns out many countries are considering similar measures in the belief that excessive compensation packages, which favored short-term performance, led to the excessive risk taking seen as a contributing factor to the econ crisis.
My BNET colleague Steve Tobak just wrote an opposing view. Read Government Say on Executive Pay? No Way
What do you think? Do boards and shareholders have enough incentives and tools in place to control the pay of their chief executives without the heavy hand of government? Take our poll.