Regardless of who wins today’s election, one issue from this campaign will continue to burn hot with investors, Andrew Ross Sorkin writes in the New York Times. Both candidates have blamed executive pay for the financial collapse, as execs are rewarded for risk-taking while rarely penalized for failure. But a University of Chicago finance professor has suggested an approach that might just work.
Banks are given a choice: Under one option, the government strictly regulates pay formulas. Under the other, the banks are free to pay however they want but are required to hold more capital in reserve, reducing the risk that bad decisions will bury the bank. “In other words, banks that cling to their free-wheeling ways would have to pay some sort of price,” Sorkin writes.