- The Washington Times - Tuesday, May 19, 2009

Financial-sector executives should not fear government-imposed caps on their salaries even as the Obama administration moves to influence how firms pay their employees.

Treasury Secretary Timothy F. Geithner said Monday that government should place “broad constraints” on the incentives that huge pay packages create for executives to take short-term risks. But he drew the line at government determining levels of pay.

“I don’t think our government should set caps on compensation,” Mr. Geithner said Monday during an interview at an invitation-only luncheon hosted by Newsweek.

He said government’s goal should be to minimize excessive risk-taking by financial firms - the kind of gambles that helped precipitate the current financial crisis.

“You had a crisis magnified by the fact that people were paid to take huge amounts of short-term risk,” he said. “That’s something that is preventable.”

Mr. Geithner said government standards could require that incentive pay be tied to long-term performance. He said such standards could combine with compensation-disclosure requirements and giving shareholders the ability to vote on salary packages - a practice known as “say on pay.”

Wall Street bonuses and retention packages have provoked anger among the public and in Congress. Lawmakers have moved to limit pay for top employees at financial institutions that have received federal government assistance. The standards Mr. Geithner envisioned would apply to all financial institutions.

Mr. Geithner also said the economy is stabilizing but unemployment would continue to rise. He pointed to positive signs in the economy, including improvements in credit markets. But he called the recession the most challenging economic crisis the nation has seen in generations.

“We’re not going to have a steady, even process of repair,” he said. “It’s going to be bumpy and still feel fragile for a while. It’s not going to feel better for a long time for millions of Americans.”

On other topics:

*The deficit: “We have to wait until we see recovery firmly established before we start to withdraw this extraordinary stimulus that we put in place.” He called reducing the deficit “one of the defining economic challenges, political challenges of the next five years.”

*His shorthanded staff at Treasury: “We’re doing quite well in terms of speed and quality of policy. … Things that normally takes years, we’re doing very, very quickly.” He said he hoped to be staffed at the levels he needs by the beginning of August.

*Financial regulation: Mr. Geithner said the administration “in the next few weeks” plans to announce a comprehensive set of proposals for overhauling oversight of the financial sector.

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