US Congress' sensible bonus retreat

The US Congress has passed another bonus bill. But bankers working for financial firms that have taken government capital don’t have to speed up their job searches just yet. Lawmakers have taken note of the adverse reaction to their last bill, with its punitive 90% tax rate. This latest one has toned down the righteous anger and looks a lot more thoughtful. 

For starters, there’s no mention of any special tax rates for bonuses. The bill explicitly states that bonus recipients shouldn’t be named. And there are no attempts to impose a ceiling on what bankers can be paid. Instead, the bill demands that banks justify what they pay their employees based on some pretty broad metrics, including the stability of the firm, the performance of the individual and the application of adequate risk management at the firm. 

It’s hard to quibble with those guidelines – these are what ought to drive bonus decisions anyway. What’s more, Congressional politicians are passing responsibility for monitoring the process to the Treasury secretary Tim Geithner. That should quell fears that the Hill’s foot-stomping is undermining the executive branch’s plans and authority – and thus its ability to effectively ameliorate the crisis. 

Of course, the House hasn’t completely shut itself out of the debate – what self-respecting politician would ever do that? The bill instructs the Treasury to consult with the chairwoman of the Congressional Oversight Panel, including on how to define what constitutes “unreasonable or excessive” compensation. If lawmakers feel the Treasury secretary blows it, they’re likely to be back with renewed fury.