Sunday, March 22, 2015

Making executives pay

In all the settlements the banks have made with legal authorities, the money being put out for the fines comes from the company itself, i.e., the shareholders. It costs the executives nothing.

Today's NY Times writes of two attempts to make executives pay. The first is a shareholders proposal at Citibank, which has paid billions in fines. This proposal would require that top executives at the company contribute a substantial portion of their compensation each year to a pool of money that would be available to pay penalties if legal violations were uncovered at the bank. To ensure that the money would be available for a long enough period — investigations into wrongdoing take years to develop — the proposal would require that the executives keep their pay in the pool for 10 years. The proposal would also require that Citigroup advise shareholders of forfeitures that resulted under the program. And the money could be tapped even if the executives contributing to it were not responsible for the wrongdoing.

The second is a proposal from Gregory Zipes, a trial lawyer for the Office of the United States Trustee, the nation’s watchdog over the bankruptcy system. Mr. Zipes calls for the creation of a contract to be signed by a company’s top executives that could be enforced after a significant corporate governance failure. Executives would agree to pay back 25 percent of their gross compensation for the three years before the beginning of improprieties. The agreement would be in effect whether or not the executives knew about the misdeeds inside their companies.

The chances of anything happening soon are slim, but it is a beginning.

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