Is Private-Sector Pay the Governments Problem?
There is widespread agreement that excess leverage was a significant factor in the financial bubble.[46] Existing government pay rules mandate tying executive pay to corporate performance, creating, in effect, leveraged executive pay at profitable firms– when corporate performance increases a little, executive pay increases much more. Consequently, when profits and stock prices of financial firms boomed during the financial bubble, executive pay skyrocketed. Now that the bubble has burst, public anger and regulatory attention has focused on the pay rather than the policies that led to the financial bubble.[47] Compensation reaped during the bubble by some financial executives was unjustified. But policymakers should learn from recent compensation policy mistakes and avoid mandates that are likely to create new imbalances in private-sector pay. Just as a wise approach to financial regulatory reform will consider policy mistakes along with private-sector excesses, compensation reform re
