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February 5th, 2009

Could Salary Restrictions Drive Away Talent?



In reaction to the president’s announcement yesterday regarding executive-salary restrictions, we posted a piece that asked the simple, yet largely ignored question: “Can Congress Limit Executive Salaries?

While yesterday’s announcement has brought many questions and issues to the table — here’s another one to consider: “will compensation restrictions drive away talented executives to firms unregulated by government control?”

If your initial reaction is “who would want these executives,” CNBC blogger Bob Pisani insists there’s a lot of outside interest:

…the talk is that anyone who makes significant money (and significant profits) is looking for a way to get out of firms that take TARP money and go to boutique firms, from currently existing ones (Greenhill, Lazard and Jeffries are mentioned), to new ones that will be created in the near future, to foreign firms that would not be part of the government restrictions.

Pisani fears that the entire banking system could become over-regulated, leading to a new dynamic he calls a two-tier system — “the old staid regulated firms and the more dynamic smaller firms.”

Will executive-pay restrictions cause company heads to seek alternative, higher-paying jobs?

A Bloomberg article today argues that a majority of the larger firms housing some of the best talent won’t be affected by the president’s restriction:

The rules…will apply only to top executives at companies that need “exceptional” assistance in the future. The limits aren’t retroactive, meaning firms that have already taken government money won’t be subject to the restrictions unless they have to come back for more.

Will the president’s regulation negatively affect the capitalistic dynamic of the U.S. banking system?

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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