The Breaking Views column in today's New York Times is an example of how quickly the underlying assumptions have changed when it comes to who makes decisions in our economy. In an article on Wall Street pay, the column says, "A shift to fixed from variable pay undermines some of better aspects of Wall Street's model. It would be better for regulators to focus on finding ways to link bonuses to genuine performance, judged over several years, before salaries rise across the board to the detriment of shareholders — and, once again, taxpayers."
The assumption is that compensation policy should be set by the regulators of a business rather than by its owners, the shareholders, through their elected directors or by direct proxy vote. Regulators can affect compensation decisions through tax policy — in fact, it was such tax policy that led businesses to prefer variable compensation to fixed compensation for pay more than $1 million a year in the first place. Any effort by regulators to fiddle in this arena would likely impose unintended consequences similar to those inflicted by the original fiddling. The "regulators" have had a tough enough time preventing Madoff-like frauds, keeping the value of the dollar from eroding, and keeping credit flowing and the economy growing. Now they are supposed to devise the perfect compensation system? If the columnist genuinely believes in variable pay, why does he suggest giving the important task of setting pay to a bunch of regulators, who, for the most part, are paid fixed salaries that are unrelated to their own performance?