Lemonade for Banker’s Pay Cap

Note:  click on term to see definition

Beyonce’s Sipping Lemonade

This weekend, Beyonce served up the largest pitcher of LEMONADE I’ve ever seen.  In case you didn’t catch the show on HBO or missed the avalanche of publicity which followed, I’ll spill some 411.  Beyonce is mad at her husband Jay-Z because he (allegedly) had an affair with this woman Rachel Roy.  Not Rachel Ray of “I’m not a chef”-style cooking fame.  However, save the tissues because it seems Bey and J are on the mend.  Lemonade video can only be streamed through TIDAL, Jay-Z’s streaming video company.  Grin…

Bankers Pay Cap Is Messy Boots

Bankers may want to start squeezing those lemons because it’s very likely a cap on bankers total comp packages will be approved and become part of the Dodd Frank Act of 2010.  The language has been listed for public comment (comments due within 90 days, July 21) before it becomes part of the mammoth Dodd-Frank Act.

The new Pay Cap proposal will apply only to senior management in areas taking risk and includes

A 4 year hold on 60% of total compensation

A 7 year clawback clause should anything go awry

IF you want a mid-level dive New York Times did a good overview, here. 

For those wanting a deeper dive read the NCUA link here 

Summary & Conclusion

I never agree with a regulated capping of total compensation.  I have concerns about the kind of talent the banking sector will be able to attract.  But I have some concerns about enforcement: investigation and disciplinary bodies that actually enforce non-compliance In a related post I speak to these concerns on a larger level.

Bonus payment models needed to be addressed.  They were a free option back in the day.  Many banks changed the how bonuses were paid since the mid-naughts.  Market makers (dealers) have long lived with Clawback risk.  The first large-scale claw back I recall was when Drexel Burnham went under and bankers were sued individually by leveraged borrowers.  So there’s precedent for clawback but rarely enforced.  Self-regulation is my preference if it’s possible.  But banks didn’t disincentive irresponsible behavior.  Therefore, after the public comment period end n late July 2016, banks total compensation packages and the way they’re handled will be in the regulators hands.

Glossary of Vernacular Terms

LEMONADE  [lem-uhneydlemuh-neyd]

 Making something good out of something bad (from the quote “when you get lemons, make lemonade”)

411   [411]

Bringing you up to date, sharing information

SHADE   [sheyd]

Making hurtful statements

MESSY BOOTS   [mes-ee] [boots]

People are saying things which can effect your well being



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