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The White House believes "out of whack" corporate salaries helped create the financial crisis. The administration says huge corporate salaries were tied to short term gains and that formula promoted excessive risk taking, which compounded problems in this economic downturn.
At a meeting Wednesday with officials the Securities and Exchange Commission and Federal Reserve, Treasury Secretary Timothy Geithner said he wants to begin the process of bringing executive pay in line with the interests of share holders.
"And we'd like to see better transparency and accountability, frankly about compensation practices," Geithner said.
Geithner was careful to add he did not want to put a cap on executive salaries. Instead, he proposed new legislation that would allow shareholders to vote on executive pay, though their decision would not be binding.
"I think there is broad recognition that practice has to change," Geithner said.
Among the proposed changes are to properly measure and reward performance based on the long term value for the company, rather than short term gain; and that compensation should be aligned with sound risk management, including a reexamination of whether golden parachutes are in the best interest of share holders.
Critics say it will put the U.S. at a competitive disadvantage.
"I mean it seems to me the decision is fairly easy for where you're going to locate the best and the brightest, I mean you don't have to be a bond trader in New York to trade bonds," Jason Clemens of the Pacific Research Institute said.
Clemens says companies did take excessive risks on short term gains, but believes the market should correct itself.
"And trust investors people who have their own money in the game or their own skin in the game to figure out better compensation systems for companies," Clemens said.
But shareholders are rarely organized enough to weld that sort of power. ABC7 political analyst Bruce Cain says companies opposed to any regulation of executive pay will be lining up.
"You're going to have heavy lobbying by companies and individuals that give a lot of money," Cain said.
Cain points out that money will show up in campaign contributions going into next year's midterm elections. For companies that have received big bailouts, it is a different story; the Obama administration is going to review salaries of top executives -- part of the price those companies paid for taking the bailout.
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