Banking Bill's Pay Controls Cause an Uproar in Industry

By Atkinson, Bill | American Banker, December 4, 1991 | Go to article overview

Banking Bill's Pay Controls Cause an Uproar in Industry


Atkinson, Bill, American Banker


Banking Bill's Pay Controls Cause an Uproar in Industry

WASHINGTON - A provision in the 1991 banking legislation that regulates bank officials' pay is causing an uproar throughout the industry.

Initially overshadowed by deposit insurance and other issues, the contested part of the law - in Section 132 - requires regulators to set national standards for compensation of bank presidents and directors.

The standards, which could be imposed in December 1993, may include rollbacks in the perks given top executives, directors, and even major shareholders - if regulators deem them excessive.

Critics warned that a strict pay standard applied by all banking regulators would turn the industry into a de facto public utility. And they said talented professionals and investors would be driven away from an industry that sorely needs both.

Deciding Who Gets a Car?

"It is absolutely unprecedented for there to be government intervention in a healthy, publicly held company," said Karen Shaw, president of the Institute for Strategy Development, a Washington-based consulting firm. "Is the FDIC really going to get into the business of who gets a car and whether the corporate jet comes with a flight attendant?"

"It is just another instance of nationalization of financial institutions in the United States!" exclaimed James I. Lundy of the Housley Goldberg & Kantarian law firm in Washington. "It is worse than bad."

Bank and thrift regulators already could revoke excessive compensation packages by using cease-and-desist orders under federal banking and thrift laws. Such actions were mainly limited to troubled institutions where regulators could easily demonstrate that the abuses were dissipating assets.

The new law gives regulators a lot more muscle. It not only sets the stage for compensation standards but also explicitly gives regulators authority to crack down on any federally insured institution that disobeys, regardless of its condition.

Levin Cites S&L Abuses

Sen. Carl Levin, D-Mich., wrote the provision after his Senate Governmental Affairs subcommittee studied executive compensation at banks and savings and loans.

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