Friday, May 15, 2009

Reform executive pay

In reforming executive pay, two things need to be resolved:

1. How to properly award competent CEOs while discouraging them to take too much risk that may bring down the whole system;
2. How to align short-term gain with long-term health of the firm.

Most of the current discussion simply focuses on capping executive pay without addressing the above two incentive problems.

Some interesting graphs to share:

a. The long swing of Wall Street Pay

(source: WSJ)

b. A similar graph linking deregulation with pay in financial sector:

(source: see my previous post on the evolution on financial sector)

c. recent trend in Wall Street bonuses:

(source: WSJ)

Finally, a historical review on the extravagant Wall Street pay.