The weekend press was filled with stories about the executive compensation problem, a topic that has reached a fever pitch given the impending bonus announcements by financial institutions, many of whom benefited from government bailout funds. 

Much of the commentary is palaver, with a great deal of umbrage but no real solution.  One of the more interesting comments came from the Pay Czar, Ken Feinberg.  Feinberg has done a good job given the limitations of his authority.  Its possible, as we have noted on this Blog, that the role of the Pay Czar may ultimately prove harmful to the financial system.  The harm, though, is structural.  The Pay Czar could only control the compensation practices at a small number of companies and financial institutions, leaving the others to pay excessive compensation.

Over the weekend, Feinberg took note of this.  In the interview with Judy Woodruff, he decried his lack of authority.

• “The biggest disappointment, I think, is that under the statute my jurisdiction is so narrow, and so circumscribed, that I have no real direct mandatory power over other Wall Street or other national companies,” Feinberg said today in an interview with Bloomberg special contributor Judy Woodruff. 

In other words, the problem is systematic and requires a broader cure.  Yet Feinberg said exactly the opposite to Congress back in October.  In testifying before the House Committee on Oversight and Government Reform on October 28, 2009, he had this to day:

• Finally, I do not recommend that my responsibilities related to compensation determinations for senior executives, as currently defined by Treasury regulations, be expanded beyond the current seven companies receiving exceptional TARP financial assistance.

I criticized the comment when he made it, pointing out that this was not the time to view the compensation problem in narrow terms.

Only when the problem is viewed as industry wide willl a cure be possible.  While fixing the board of directors is one approach, the best is to federalize the regulation of executive compensation.  As noted in Returning Fairness to Executive Compensation, the excesses associated with executive compensation are best explained through the lack of meaningful standards imposed under state law.

The solution?  In Senator Dodd's bill on financial reform, he would allow bank regulators to adopt rules that prohibit excessive compensation.  As I have said elsewhere, there is nothing wrong with that.