Payroll Regulation in the Private Sector

September 18, 2009 by  
Filed under Economics

Risk-takers beware – the government may be after your paycheck. The Fed has announce plans to regulate the pay of bank employees at all levels where risk-taking decisions are made. We are not discussing just the top dogs who fly around in corporate jets:

Under the proposal, the Fed could reject any compensation policies it believes encourage bank employees — from chief executives, to traders, to loan officers — to take too much risk. Bureaucrats wouldn’t set the pay of individuals, but would review and, if necessary, amend each bank’s salary and bonus policies to make sure they don’t create harmful incentives.

So let’s see how this might work.

You are a young adult wanting to buy your first home. You have no debt, excellent income and cash flow, and a 25% down payment. On the other hand, this is your first debt transaction so your almighty FICO score is zero.

Back in the days of actual loan underwriting by humans instead of FICO robots, you would be an excellent candidate for a loan and promptly approved. Under the Fed’s proposed rules, the loan officer might think you are a “risky” borrower because that’s what the FICO computer says. Being labeled high risk by a FICO robot means the loan officer’s compensation could be targeted by the brand new FBBC (Federal Bureau of Banker Compensation). He’s not willing to take that chance. Your loan application is denied. His salary is protected.

Can you see this happening? No banker with decision-making authority will want to take any risks for fear of punitive FBBC action.

I don’t like it. There are ways to solve this problem that don’t involve federal bureaucrats having control over bank payrolls. Systemic risks can be regulated without having Uncle Sam’s payroll police staring over a loan officer’s shoulder.

But it will probably happen. Congress doesn’t even have to approve it. The Fed’s Board of Governors can act on its own. It’s coming.

Now let’s extrapolate this concept to health care reform. How long do you think it will be until Washington is regulating the pay of physicians and nurses? I’d give it a year of budget-busting experience under a new system. The pressure on government to cut costs will be overwhelming. Physicians will get even more discouraged. To meet the demand for doctors willing to work long hours with whiny patients for lower compensation, maybe Walmart will open a chain of medical schools.

If you are in a target industry, make your money now before it’s too late.

Photo credit: Jeremy Brooks

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23 Responses to “Payroll Regulation in the Private Sector”
  1. Rick Beagle says:


    I am not sure if you have been sitting in the sun too long, self medicating, watching Fox news, or all of the above, but its paranoid pieces of fluff like this article that make thinking liberals cringe. There is an attempt underway to help minimize the possibility that the economic free fall that just happened doesn’t happen again. Rather than embracing the change as practical and necessary you bemoan the negative impact on the economy. Which is why I cringe.

    Look OUT the freaking window, open your 401k, take a gander at the freaking unemployment lines… gawd, who the heck exactly is going to stop making money because of these new policies? It sure as hell isn’t mainstream Americans, but the risky behavior that is being regulated sure as hell took a healthy bite out of my retirement funds, crashed our markets, and generally screwed the entire population of the world over. Yep – world.

    Why you would continue to coddle these idiots by painting paranoid idiocy shows how freaking clueless the “economically conservatives” still are. Here is a more to the point scenario, the people in your scenario can’t get a job, are living with their parents, and a new house is a long ways off in their future. Guess which scenario, yours or mine actually represents what’s going on out there?


  2. Brian says:

    I find myself agree with you, Mr TML. Once Gov’t starts regulating industries they will never stop.

    For Rick:

    Maybe there should be a Czar in charge of Personnal Responsiblilty and before anyone is allowed to make any financial deal or contract, they would have to submit all their info to the czar, and if thay are not meeting certain criteria they would be turned down. This czar could have prevented all the liar loans, stop people from using their home equity, purchasing cars that were financed for more then 3 years, and would also force people to save for retirement, purchase health insurance and so on.

  3. MasterPo says:

    Rick – Since it appears fincance is yet another of your lacking knowledge, allow me to help. *Any* time money is loaned there is risk. Sometimes more than others but still always risk. TML is saying that banks will be *discouraged* from making risky loans by hitting them where it really, personally hurts – in the wallet. And that’s not right. Everyone has to start somewhere. And this kind of policy doesn’t help get people off the ground.

    Think of all the business loans that will NOT be made, especially to small and medium business by this policy. They ALL are high risk! But essential.

    Brian – I like your idea! 😀

  4. TMN says:

    I’m sorry to see you’ve apparently lost your critical reading skills. The snippet you cite VERY obviously says that they want to outlaw incentive packages IN ADVANCE. How you jump from that to “The Fed will be able to dock individual worker pay based on individual actions” I have no freaking idea, but it’s utterly nonsensical.

    What they’re talking about is this: some banks had incentive packages that said “we’ll pay you $2000 for every loan you close”. No mention of risk, truth checking, any of that. What it led to was loan originators telling unemployed people to claim they were doctors, checking only that someone in the claimed profession COULD make as much as the borrow said they did, not that this particular person ACTUALLY made that amount, and generally lying up and down just to get numbers. So when the Fed steps in and says it isn’t working and they want to require that there’s some measure of sustainability tied to compensation, and not just raw numbers, it looks like a good thing to a lot of people. Except you and your “OMG the Fed is going to dock pay from individual workers” bullshit, of course.

  5. jeff says:

    I used to enjoy reading your column, as I thought you provided common sense advice in a manner that I’m easily able to gather. Tough love is one form of love that doesnt work for everyone, but for me, hearing the truth, no matter how much it hurts will always help in the long term. This is typically where i’ve found a handful of your posts to fall. Recently however, I’ve found your posts to be peppered with paranoia and not as enjoyable to read.

  6. Rick Beagle says:

    Brian and MasterPo,

    Way to enable corruption, greed, and economic disasters by shooting down any sort of reasonable and responsible regulation. There is absolutely no reason that money can not be made under the guidelines that have been provided, but any sort of oversight seems to make you all cringe. Way to “not learn from our mistakes”, “encourage corruption”, and generally spew talking points of people who just robbed you and your neighbors blind.

    Rick Beagle

  7. Brian says:


    You have failed to understand any views but your own. According to the article the Fed has released parts of the plan and will release the full regs in a few months. I think a large part of our disagreement stems from “WHO” the people are that created the mess. I gather from your writings that only people in Corps. are to blame and everyone else is clueless and unable to read and understand documents that they signed. All I have said is that where does the Gov’t oversight end. Yes I was being sarcastic in calling for a czar for individuals and every financial transaction, but if there had been one there wouldn’t be any interest only home loans, taken out with fraudulent claims of income. In every case I have read of the evil bankers pushing loans through not one person said “Wait a minute” I will not be able to make the payment or what happens to my P+I if the interest rates increase.
    Where are your cries for increased oversight of groups like ACORN who pushed for home loans to people that couldn’t pay for them.
    Corroupt people that that Bernie Madoff was making them money in all market conditions, did the oversight of Bernie prevent his Ponzi scheme, or did it just encourage people things must be OK.
    The FED months ago passed regs on CC Co’s saying that 2% of the balance owed wasn’t enough and it should be increased to 4%, and now that CC Co’s are doing that they are being blamed for blowing peoples budgets up and making the payment skyrocket just to collect for fee ahead of the Gov’t CARD regulations being implemented.

    In this link below is a article of a retired 60 year old who had his payment more then double because his Minimum payment went from 2% to 5%, and he blames the Chase. I read it as a 60 year old who has had a outstanding debt for 8 years and was happy to make the minimum payment on it. By the figures given in the article his balance is over 29,000 bur less then 30,000. Who is really at fault here?

    I am of the opinion that more people should really spend more time reading and understanding things covering all aspects of personal finance and less reading of the sport pages.

  8. Rick Beagle says:


    I am guessing you are having a problem with scale. If you think the impoverished and irresponsible actions of the man above or even the infamous ACORN (where exactly did I say they shouldn’t be held accountable for their actions?)were the reasons for the financial world wide calamity that befell us, then I would call you a fool.

    Furthermore, I would suggest that you do not understand the tenets of risk management, or the power of unregulated greed. The proposal on the table does not prevent people from making money, it does however insist that they manage their funds and their people in such a way as to dissuade abuse.

    I can not fathom why you would find such an idea odious? It is my belief that the right wing have become so engorged on the talking points of corporate shills that they can not distinguish reasonable reaction from their own absurdity. Turn off Fox and actually go read the proposal. It is a reasonable proposition that does nothing more than try to protect consumers, and share holders.

    As to your comments about czars, and whatever nonsense you want to throw out there, those may elicit a chuckle over at your usual stomping grounds, here however, you simply look to be a tool. If you are going to post here, you better come with something more akin to a brain next time.

    For the love of all that is Holy, turn off Fox.
    Rick Beagle

  9. PW says:

    Wait, wasn’t it Barney Frank and his gov. buddies that encouraged and demanded all the risky loans be made, and gosh, I think they didn’t even get their hands slapped. In fact, they gave bail outs as rewards. So what makes banks different then our governmental leaders? Since it originated with the politicians, they should get the same penalty with salary, benefits etc. I think if they want to penalize banks and employees the politicians should be penalized also. They causes the mess.

  10. Rick Beagle says:

    “Wait, wasn’t it Barney Frank and his gov. buddies that encouraged and demanded all the risky loans be made, and gosh, I think they didn’t even get their hands slapped. In fact, they gave bail outs as rewards. So what makes banks different then our governmental leaders? Since it originated with the politicians, they should get the same penalty with salary, benefits etc. I think if they want to penalize banks and employees the politicians should be penalized also. They causes the mess.”

    Nope. This is a common misrepresentation of the truth spoon fed to those who would believe such nonsense. The government did not help the situation, but it was the activities of businesses and more to the point, those within those businesses that resulted in this mess.

    Let me give you an analogy that sums this up a bit… you are buying a car, and I, the government suggest that you buy an American made car – which you do. You then use that car to run down and kill a million people. Is the government at fault for insisting that you buy an American made car or is the driver of the vehicle at fault? If you listen to Fox and believe their absurdity the government is at fault, but if you are a reasonable thinking human you would find fault with the driver.

    Again, for all that is Holy, turn off Fox.
    Rick Beagle

  11. PW says:

    To Beagle:

    Too bad, you are wrong, I heard the actual tapes of Barney baby saying everything fine no problems. Maybe you should listen to his tapes when he outright lied about the situation, it is you my poor boy that is wrong. I rarely watch TV nor listen to the radio, am neither a democrat nor republican, but I heard what I heard and you should listen to them for the truth. The politicians are the ones that caused these problems and I only see them digging themselves in deeper to causing big problems for the future generation of this country.

    Prior to Barney baby these people did not qualify for loans, were never encouraged to get loans, and yes, I know because I have friends and family members that were able to buy homes and laughed saying they could not believe they were able to get loans and in fact encouraged to get loans and even questoned the bank about some of the info they told them to put on the paperwork, which were borderline lies. They called us for advice is how we got involved but we stayed out of it. From first hand experience and from hearing the tapes with my own ears, you are wrong. Now how did I hear the tapes, the friends/family called us and told us to listen to Barney baby and they were not happy because they ended up on the butt end of the deal, and they blame Barney baby for their disaster.

    And no, I don’t listen to Fox, I don’t have cable, but those tapes from Barney baby were all over the net, and no I do not turn off my net for anyone anytime. I suggest if you don’t like the content and posts on this site, you just move on!!!! Although I do find you entertaining in a silly way. Can’t fool us with your lies, sorry.

  12. Rick Beagle says:

    You would listen to the tapes of Barney Frank’s and go AHA! there is the reason for the economic meltdown without understanding the context of either what BF was trying to do, or what actually occurred. I do find fault with BF, but then again, the repealing of Depression era protections is something that I found equally troubling, along with the general laisse faire attitude of our regulators (bowing to political pressure).

    However, to blame the government for the misdeeds of those that would covertly and overtly fund them for their vote is blaming the hooker and overlooking the sins of the John. Several businesses continue to wield incredible influence in our government and until this stranglehold is broken, our government will continue to perform poorly. Unfortunately, it is the likes of you who would find fault so easily with the poor, but can not come to grips with the overt corruption in our business community.

    Please, I am not one to comfort the stupid and the ill advised, but then again, I am not one to turn a blind eye to those that would fleece consumers and then turn to their political machine to cover up their tracks (Goldman, Haliburton, Xe, General Electric, etc.). Unfortunately, you continue to be duped by the shell game of the corporate shills that somehow have managed to invade your news source.

    BTW. I too have listened to the tapes of Barney Frank, but in context. Something I bet you have not? His heart was in the right place, but his ideas were fatally flawed and in the unregulated wild west that we had certain individuals took full advantage of it (nefariously).

    Rick Beagle

  13. Lurker Carl says:

    “Unfortunately, you continue to be duped by the shell game of the corporate shills that somehow have managed to invade your news source.”

    Rick, those shills are controlling your news source as well.

  14. Rick Beagle says:

    “Rick, those shills are controlling your news source as well.”

    Perhaps, but not to the gratuitous and overt levels found on FOX or public radio.

  15. MasterPo says:

    Rick – Check your fact. The CEO of GE, who owns NBC and MSNBC, is sooooo much in bed with Obama.

    Not to mention that GE stands to gain handsomely from gov grants, tax credits and contracts with all this “Green” crap push.

    Follow the money…

  16. MasterPo says:

    PW is correct. Going all the way back to President Carter with the “Community Invesment Act” banks were *forced* by the gov to make loans to people they knew were high risk.

    As I’ve said many many many times before, if someone walked in looking for a loan and the bank refused to give one even if there was a gov program that could make it happen they (the bank and probably the loan officer) would be sued for discrimination.

    *Any* time the gov “guarantees” loans that right there is ripe for squander.

  17. Rick Beagle says:

    “Rick – Check your fact. The CEO of GE, who owns NBC and MSNBC, is sooooo much in bed with Obama.”

    Check your reading skills, I said our government was controlled by big business, and gave example from both sides of the political spectrum. But for full disclosure it should be noted that GE is making a mint off of two wars already, and that they have many Republicans on their payrolls as well. Which brings me back to my comment, until big business can be unwound from our political process, it will continue to fail.

    As to your other comment, you are so full of hot air. Explain to me how Barney Frank’s managed to skew risk ratings on bundled high risk loans? Explain to me how exactly he convinced CFO’s and CEO’s to change their risk portfolios to a level that made failure inevitable? Explain to me how BF encouraged loan officers to lie, cheat and steal in order to make incredible bonuses? Explain to me how BF was responsible for unwinding Depression era regulations that were set up to protect us against just this type of calamity (Phil Graham is the point man on that absurdity)? Explain to me how BF was responsible for the gross incompetence of our regulators who were told to sit on their hands by the Bush administration?

    You don’t think that BF is being used as a fall guy by the same corporate shills we talked about in the first paragraph?

    Rick Beagle

  18. lurker carl says:

    ““Rick, those shills are controlling your news source as well.”

    Perhaps, but not to the gratuitous and overt levels found on FOX or public radio.”

    So, the lies your news source tells are more believable than the lies told on other news outlets?

  19. Rick Beagle says:

    “So, the lies your news source tells are more believable than the lies told on other news outlets?”

    Again, you are confused over scale. The right wing corporate shills have produced a group willing to believe everything that they say, and have been capitalizing on it for years.

    The left wing media that you folks are always blabbering about have no such loyalty or if it is there, the numbers are incredibly small.

    I have a theory that explains this a bit, the right wing have been in charge on the national level for the better part of half a century. The Democrats in charge is relatively short lived and rare. If you are in the mood for corruption, do you go after the minority group or do you go after the big boys? And let’s face it, the basic tenets of Republicanism favors business corruption anyhow. They don’t mean to, but it does. Lefties, pfft, not so big into big business.

    Point in case, there is an old regulation that would kick these corporate shills out of our media outlets and guess which party and their zombies are fighting it so vehemently (the left support fair reporting)? It would kill the Republican voice they bemoan, unaware that they fight against their own intellectual enslavement.

    In conclusion, we Lefties have our corporate shills, but a combination of philosophical differences and our lack of continued power have minimized the impact of corporation on our news. Come on, the most popular liberal “news” show is the Daily Show, which is a spoof on everything. Compare the ranting of John Daily with the crazy scary nonsense pushed by on Fox objectively, and you get a sense of what I’m saying.

    Rick Beagle

  20. Rick Beagle says:

    Two corrections:
    It would kill the Republican voice they bemoan, unaware that they fight FOR their own intellectual slavery.

    Compare the rantings of Jon Daily with the crazy scary nonsense pushed by (insert crazy) on Fox objectively, and you can easily get a sense of what I am saying.

  21. MasterPo says:

    So Rick, if Fox is only for the extreme right-wingers, how come Fox News rates *crush* ALL other news channels and shows?

    Just how many extreme right-wingers do you think there are in the country to support a ratings landslide like that? And still growing!

    Answer: Not nearly enough to support those kinds of ratings. So Fox is drawing an ever growing audience from other segments too.

    News and information isn’t about concensus. In every dark moment someone somewhere is holding a light.

  22. Rick Beagle says:

    People have always been drawn to freak shows.

    And while they dominate the rating in their genre, they are hardly dominating the air waves.

  23. MasterPo says:

    “And while they dominate the rating in their genre, they are hardly dominating the air waves.”

    Maybe you can point out to me the vast expanse of other conservative prime-time news channels that you’re comparing Fox to?

    Oh that’s right – there are none!

    Just liberal channels like CBS, NBC, ABC, PBS, MSNBC, CNBC, CNN, etc.

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