Eliminating stock options as part of highly paid executives compensation and withholding a portion of the money due them for several years would give those executives incentives to consider some of the long-term consequences, and intrinsic value, of their decisions, says economist Robert Shiller.
In fact, it could seriously help to avoid another financial disaster.
"The holdback should be for a pre-announced dollar amount, and the contract should specify that it will be lost if the company goes bankrupt or gets a government bailout," Shiller writes in the New York Times.
Meanwhile, a sweeping overhaul of Wall Street rules in the aftermath of a financial crisis cleared congressional negotiations and headed to the House and Senate for final votes.
The bill would also impose new rules for how all publicly-traded companies, not just banks and other financial firms, pay top executives, CNN.com reported.
Shareholders will be given a nonbinding advisory vote on how top executives are paid while in office. Shareholders also get a nonbinding advisory vote on executives' outsized severance payments, or "golden parachutes," CNN reported.
The new rules would also beef up oversight of pay practices within the financial industry, which some critics have suggested helped fuel the crisis by encouraging workers to place risky bets.
"That way, the economic cost of a bankruptcy or bailout is placed partly on the executives who make decisions."
"The riskiness of the company’s activities becomes the executives’ personal problem, not just the taxpayers’."
Stock options don’t lower total compensation, Shiller notes. “They probably encouraged CEOs to expose their companies to more risk, because options’ value grows as risk does,” he says.
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