The Federal Reserve today officially announced a plan to regulate pay structures at banks, the same day the pay czar rolled out his plan to cap salaries at bailed-out firms. The administration’s double-whammy on compensation marks an unprecedented level of government involvement in the private sector, and the policies that result may be the most enduring legacy of the financial crisis, notes the Wall Street Journal.
The Fed’s plan will create two pay regulation systems, one for the nation's 28 largest bank holding companies and another for thousands of regional and community banks. Within that system, each bank’s compensation rules are likely to be tailored to the institution with the goal of discouraging employees from taking risks for short-term gain. The review of pay structures, and negotiations with regulators will be confidential.