Payroll Regulation in the Private Sector
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.
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