On Second Thought Obama Decides to Abandon Pay Regulations

It looks as if there may be some respect for the free markets still alive and kicking within the Obama administration. After a number of on-again, off-again signals, they appear to have thrown in the towel on regulating compensation.

From the WSJ:

The Obama administration is dropping its plan to cap salaries at firms receiving government bailout money, leaving them subject to congressionally imposed limits on bonuses, according to people familiar with the matter.

The move is likely to end months of confusion on Wall Street about separate pay directives from the White House and Congress.

The administration is expected to announce the compromise on Wednesday. In addition to standing behind the restrictions passed by Congress in February, the administration plans to push for broad changes in compensation practices across the financial-services industry, these people say.

It also will appoint a “pay czar” to monitor the firms receiving the most government aid. Treasury Secretary Timothy Geithner is expected to push all firms — not just those receiving funds from the government’s Troubled Asset Relief Program — to more closely tie incentive compensation to long-term performance by paying employees in restricted stock, rather than cash.

The important part of the above is that they are dropping plans to regulate compensation. All of the rest is spin and face saving.

Based on the article, GM, GMAC, AIG and Cit are the only firms that are likely to see any interference with their compensation policies. Given that all three are functionally government sponsored enterprises that seems fair. I expect you will see some huffing and puffing from Congress and then this whole sorry episode will diminish to historical footnote status.

Give the Obamites credit for recognizing that they were about to embark on a journey they didn’t really want to make. I suspect that they looked at all of the permutations and combinations of bad results that could have come about if they had pursued this policy and opted for discretion over valor.

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About Tom Lindmark 401 Articles

I’m not sure that credentials mean much when it comes to writing about things but people seem to want to see them, so briefly here are mine. I have an undergraduate degree in economics from an undistinguished Midwestern university and masters in international business from an equally undistinguished Southwestern University. I spent a number of years working for large banks lending to lots of different industries. For the past few years, I’ve been engaged in real estate finance – primarily for commercial projects. Like a lot of other finance guys, I’m looking for a job at this point in time.

Given all of that, I suggest that you take what I write with the appropriate grain of salt. I try and figure out what’s behind the news but suspect that I’m often delusional. Nevertheless, I keep throwing things out there and occasionally it sticks. I do read the comments that readers leave and to the extent I can reply to them. I also reply to all emails so feel free to contact me if you want to discuss something at more length. Oh, I also have a very thick skin, so if you disagree feel free to say so.

Enjoy what I write and let me know when I’m off base – I probably won’t agree with you but don’t be shy.

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