Geithner opposes salary caps for corporate officials

WASHINGTON -- Treasury Secretary Tim Geithner said Monday the government shouldn't rein in executive pay but should change corporate incentives so officials aren't rewarded for taking the kinds of risks that helped sink the economy.

"I don't think our government should set caps on compensation," Geithner said at a luncheon sponsored by Newsweek. "You had a crisis magnified by the fact that people were paid to take a huge amount of short-term risk. And that's something that's preventable."

Executives at many financial-services companies reaped large bonuses by buying or selling mortgage-backed securities to pump up quarterly earnings. When the subprime mortgage market imploded, it drove the companies into financial ruin.

"Returns were so appealing they basically overwhelmed all the checks and balances in place," Geithner said.

The Obama administration already is moving to set limits on the pay of executives at companies that received government bailout money. Geithner said he wants to go further by enacting "broader reforms" so compensation is "tied to long-term incentives." He also advocated a "say-on-pay" movement in which some companies are letting shareholders vote on executive compensation packages.

Banks have opposed outright limits on executive pay, saying such constraints would crimp their ability to attract top talent. David DeBoskey, an assistant professor of accounting at San Diego State University, said tying salaries to long-term returns "sounds good and is the politically correct posture." But he added, "There are all kinds of tricks" firms can use to skirt the limits.

DeBoskey added that "say-on-pay is the future of executive compensation." But Charles Elson, a corporate governance professor at the University of Delaware, said it would usurp authority from boards of directors.

More broadly, Geithner said the economy is "clearly stabilizing" and cited "some improvement in credit markets." But he said the recovery will be slow and unemployment will stay high even after the recession ends. "It's going to be bumpy and still feel fragile for a while. It's not going to feel better for a long time for millions of Americans."