Are You in the "Clawback" Club?
On April 21, 2016 Federal Regulators released long awaited new rules
for how big banks and other financial institutions can compensate their executives. The effect of these new rules are to expand the percentage of compensation and the length of time incentive packages are to be deferred and to expand the number and types of employees covered by the rules if it is found "an executive's actions hurt the institution or if a firm has to restate financial result."
The problem with these new rules is that they apply only to individual executives or traders, not to the teams and groups and departments where these decisions are most often made. The idea that such decisions are the purview of autonomous individual actors is anachronistic. If one trader in a group, by his or her independent action causes an institution to be hurt, the entire group and their bosses should feel the clawback
Not only was there likely some collusion or cultural support from the group, but also because, if the entire group is held responsible some very valuable peer pressure would discourage any individual actor to take any "rogue" actions. Regulators should recognize that business organizations are composed not only of economic actors, but are held together by very strong social networks which can exert more influence on behavior that the authority of individual people.