Compensation Caps in Financial Industry

[Name of the Institute]

Introduction1

Definition1

Discussion1

History1

Pros and cons3

Increased inequalities3

Negative impact on shareholder returns3

Sign of corporate board failing4

Lead to corporate scandals4

Creating a cap on compensation effect corporate scandals.5

Policies of investors5

SEC protection5

Government superannuation fund authority6

Perpetual Investments: RESPONSIBLE INVESTMENT POLICY6

Policies for promoting responsible business conduct6

Conclusion7

References8

Compensation Caps in Financial Industry

Introduction

Definition

Compensation cap is defines as the term in which a limit comes on the compensations given in financial sectors. This is important because employees present at the executive level will get more. This also creates an atmosphere of inequality that they are not making good and balance environment. Compensation caps are required in an organization or financial sector.

Discussion

History

The problem of compensation cap is an important idea that leads to a lot of problems as well as the solution of problems. Without the cap on compensations, employees are not treated equally which should be the case because of difference in their duties. Having a cap give employees thinking that they are equally responsible for the work they had been doing. Citigroup Inc., Morgan Stanley and the rest of the financial institutes give a response on the limit of bonuses which are expected. In this, they have discussed the base salaries of executives which are increasing and for some other employees who are high in production. In the preceding month, President Obama signed a law that restrict the pay on bonuses for the top biggest executives. These executives are the payers of tax capital which is through the program of Troubled Assets Relief Program (TARP). This program also consists of the upcoming 20 biggest employees that will be compensated.

This program discussions were just on the earliest stage. Government yet does not tell the basic rule that needs to be followed on the payments of bonuses in companies. Considering the securities and banking sectors, organizations have the regulation of growth for the compensation that enhances the salaries of biggest employees. More the salary, less will be the significance of bonuses.

Bonuses are based on total annual compensation that has been given to employees. Considering the upcoming rules, only one-third of annual compensations can be given as bonuses. In the financial industry, there are a lot of workers who are getting a rate of compensations in current years. In 2007, if we consider Wall street, so their bonuses reached high then $200,000 per workers.

There was a research conducted in US which shows that the amount or money a CEO is getting includes stock options and bonuses. If we consider the CEO salary with a regular employee, so the difference is around 25-40 in 1970's. It is not necessary that the compensations increases as a case of 2001 that showed a downfall.

Federal reserve's New York bank and the treasury of US introduced the TALF on 3rd march 2009 which is known as TERM ASSET-BACKED SECURITIES LAON FACLITIY. They take off the limit on compensation related to executives for being a part of an institute. There was a document in which questions were immediately asked. This document was published on the ...