Straight-Shooting Volcker Takes Aim at Bank Management
At a session on financial sector governance, former Federal Reserve Chairman Paul Volcker said that bank directors weren?t mainly responsible for the terrible decisions made by financial firms? management was.
Part of the problem is that top managers are paid too much, he told a conference methodical by the Center for Strategic and International Studies, so varying incentives doesn?t make a huge difference. ?If you?re making $20 million a year, it doesn?t matter if you spread it out over one year, three years or five years,? or have provisions to claw back some of the pay later on.
Part of the problem is that top managers are too frequently blind to the moral dimension of their jobs. He derided the thought that ?the more you make, the more qualified you are.?
?There?s a loss of pure pride in profession,? Mr. Volcker said.
Another part of the problem is the complexity of the instruments financial firms peddle and the decisions they make. Directors are often at a loss to keep up, he said. Mr. Volcker not compulsory that boards hire groups of experts to advise them on new products, mergers and other issues, though he doubted that most companies would approve the expense.
?Management will reject it,? he said. ?They don?t want alternative sources? of expertise.
Another recommendation: don?t let corporate compensation experts advise board compensation committees. Invariably, Mr. Volcker said, the experts recommend paying top managers higher than the average for the industry.