Washington Financial sector executives should not fear government-imposed caps on their salaries even as the Obama administration moves to influence how firms pay their employees.
Treasury Secretary Timothy Geithner said Monday that government should place “broad constraints” on the incentives that huge pay packages create for executives to take short-term risks. But he drew the line at government determining levels of pay.
“I don’t think our government should set caps on compensation,” Geithner said Monday during an interview at an invitation-only luncheon hosted by Newsweek.
He said government’s goal should be to minimize excessive risk-taking by financial firms — the kind of gambles that helped precipitate the current financial crisis.
“You had a crisis magnified by the fact that people were paid to take huge amounts of short-term risk,” he said. “That’s something that is preventable.”
Geithner said government standards could require that incentive pay be tied to long-term performance. He said such standards could combine with compensation disclosure requirements and giving shareholders the ability to vote on salary packages — a practice known as “say on pay.”