O Would Some Power the Giftie Gie Us....

...to see ourselves as others see us.

This quote from Scottish poet Robert Burns came to me when I saw this "surprising" headline from The Wall Street Journal: "Bankers Wary of Fed Pay Proposal".

The article, by David Enrich and Dan Fitzpatrick, posted this afternoon (available here), reports that "some" bankers have "reacted warily" to the news (Washington Post article here) that the Federal Reserve will review, and may restrict, pay policies for thousands of employees of the nation's largest banks.

Bankers still seem to have a hard time seeing themselves as others see them. While most of us not employed on Wall Street blame the risks that bankers took for much of the financial mess we now find ourselves in -- and compensation packages certainly encouraged bankers to take on outrageous risks -- bankers themselves seem to blame everyone but themselves.

Sure, they say, bad things happen. But that's just the way things are. Now that everything's fixed, can we just go back to making money?

Well, no.

The Journal article quotes Peoples Bank president and CEO Chevis Swetman as predicting that the Fed plan "will harm the industry's ability to attract talented employees", and notes that Peoples' already ties compensation to performance, and that therefore its CEO's bonus dropped from $59,577 in 2007 to $30,375 in 2008, and that he expects no bonus this year.

Note that Peoples did not accept any bailout funds.

It seems to me that the Fed plan is a response to the current "heads I win, tails you lose" situation in banking: when banks are at risk of failing, they turn to the government (and therefore to taxpayers) to help bail them out, but when they return to profitability, they want to keep all the gains for themselves. As one of those taxpayers, I'd just like to say, "Hey! Wait a minute!"

To be sure, the Journal writers did find some bankers who applauded the plan, including Steve Steinour, chief executive officer of Huntington Bancshares: "I like it.... Having disciplined pay practices is good for the country long-term."

That addresses the second half of what I'd like to say to Peoples' Swetman: tying compensation to performance is a fine idea, but as with many ideas, execution counts. What performance exactly are we talking about? Next quarter's stock price? Or something a little more long-term and a little more solid?

The Post's Neil Irwin points out that the Fed plan, which is expected to be approved shortly, is separate from other government efforts to rein in what most of us would call excessively lavish compensation in financial services: "The Treasury Department is weighing how to restrict pay at firms that have received money from the $700 billion financial system bailout. And Congress is weighing legislation that would curtail pay to executives."