Cap Got Your Ca$h?

by Derek Loosvelt | January 30, 2009

Legislation is reportedly in the works that would cap compensation at all firms accepting bailout cash from Uncle Sam. The cap—covering salary, bonus and retirement contributions—would be equivalent to what President Obama makes per year: $400,000.

Here’s a sentence you’ll be reading everywhere during the next 24 hours:

Senator Claire McCaskill of Missouri, introducing rough details of the cap, said, “We have a bunch of idiots on Wall Street that are kicking sand in the face of the American taxpayer.”

Ouch, those little rocks hurt.

This is major news to current and future bankers not only in the U.S. but worldwide as well (no doubt the good folks at Davos will have something to say about this tomorrow), and my initial thoughts are these:

Though the U.S. government is a major equity holder in these firms—and yes, many of these firms, especially those whose names rhyme with peril finch made some terrible decisions with regards to bonuses while booking billions in losses and cashing taxpayer money—a cap is a too-drastic measure right now and would likely prove to hurt rather than help these banks in the long run (or in a 50-yard dash). Incentive to grow the top and bottom lines would diminish, and though salary costs would be brought down, the morale inside these firms, already decimated due to a mothball-moist deal market and monstrous layoffs (a direct result of the hubris of a select few in the industry, not every last banker down to the first-year analyst), would be virtually demolished.

This is surely to be a much debated topic in the coming weeks and we’d love to hear your thoughts, so chime in by commenting below.

Cheers.

P.S. Take the points this Sunday.

Filed Under: Finance


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