Bank of America Corp. directors are hitting a new hurdle as they hunt for the giant bank's next CEO: Obama administration pay czar Kenneth Feinberg.
William Demchak, senior vice chairman at PNC Financial Services Group Inc., spurned a feeler last week from a recruiter for the Charlotte, N.C., bank, according to a person familiar with the situation. Mr. Feinberg's required approval of the compensation package for whomever succeeds Kenneth D. Lewis was a major factor in the decision, this person said. Mr. Demchak also didn't see the bank's situation as fixable given the government's heavy influence over the company…
…Mr. Feinberg's role as overseer of seven companies that received huge government aid gives him enormous influence in the succession process at Bank of America. Once directors make a decision and negotiate contract terms with their chosen CEO, the compensation package must be submitted to Mr. Feinberg for approval.
Mr. Feinberg declined to comment.
Yes, the design of incentive plans across the financial services industry clearly played a significant role in shaping behaviors that led to our recent financial collapse. Yes, responsible parties should focus on how these plans are constructed, so as to align incentives with intended outcomes for the enterprise.
But no, it is not a good idea for compensation to be controlled by a czar of the federal government.
The appropriate responsible parties should be found in the Board of Directors, who in turn should be accountable to shareholders to ensure that compensation systems are constructed wisely and with maximum transparency.
In circumstances where the Government has provided extraordinary assistance, it should have rights equivalent to those of a major shareholder (whether or not it is in literal fact). The board must be able to justify its and management's decisions regarding compensation (among other matters as or more important). If it cannot do so, the remedy is its removal.
Compensation, with its politically charged links to populist anger, has taken way too prominent a place in our discussion of causes and remedies to the crisis. The very idea of a pay czar is a bad one on the face of it. Should we also appoint czars for the dozens of other categories of decisions that businesses must make everyday? How about one for responding to disruptive new technologies? They can kill companies. How about one for pricing? That worked well in the 70's. How about one for setting production levels. Too much or too little inventory can kill a company. There's a name for that I think…