In the Scheme of Things, Pay is Not That Big an Issue

By Lisa Valentine

How important is the issue of banker compensation to keeping the financial markets from another disaster? It’s important, but it’s simply not that important – at least it’s not as important as the G-20 sets it out to be.

I’ve never heard anyone blame excessive compensation—no matter how outrageous or ridiculous—as the cause of the financial crisis. Guidelines for compensation should exist, but they should exist as one small part of overall financial reform. The media and politicians understandably glom onto the issue of compensation because it’s more tangible then, say, credit default swaps. It also elicits much more indignation—how could that banker or trader or executive be worth that much. 

But, the issue of compensation takes focus away from more pressing matters such as whether capital requirements should be raised and ensuring that the credit ratings agencies do a better job.