Pay regulation not addressing the real problem

What really drives financial market regulation is not logical thinking but a mishmash of misguided ideology as well as a reversion to good old authoritarian attitudes. The former is derived from the conviction that unequal incomes are somewhat suspect, the latter is the Chimera that any problem can be fixed by rules set down by an 'enlightened' technocrat. This leads to absurd outcomes such as the current proposal to limit any discretionary bonus payment to a maximum level equal to the amount of annual base salary. Not much thought is given to the fact that this will lead to an upward move in basic pay which in turn will mean that the financial institution that pays these higher salaries will become less, not more, stable. Making compensation more sensitive to the time horizon of risks incurred in a bank is another can of worms that regulators seem to be intent on opening. While one has to admit that remuneration policies in many banks and other financial institutions have been found wanting during the past few years this situation is not being helped by the way that politicians and regulators fall over themselves in order to help out the same institutions with public support once they reap the fruits of their profligacy. Proper financial reform - especially the introduction of limited purpose banking - would ensure that the shareholders of the banks - and not the taxpayers - would pick up the bill for any poor management decisions. The need for onerous pay regulation - and an expensive bureaucracy to monitor compliance - would be avoided.