Skin in the Game

Warren Buffet says that it’s high time CEOs of financial institutions assume their own salary is at stake when they make investment decisions for their companies. “Buffett has been criticizing overreaching corporate managers and complaisant directors for decades. But the question of how to motivate good corporate behavior has taken on new weight as Washington debates reining in the financial giants whose missteps brought the economy to its knees two years ago. The Obama administration last month proposed separating banks’ proprietary trading activities from their federally subsidized deposit-gathering and lending ones. Other proposed rules would increase the amount of capital banks hold against losses and how much cash they carry to deal with a surge of withdrawals. But Buffett said there’s a simpler way to cap risk-taking: Forcing lavishly compensated CEOs to take responsibility for assessing the risks at their firms — and putting their own wealth at stake, to boot. ‘It is the behavior of these CEOs and directors that needs to be changed,’ he wrote. ‘They have long benefitted from oversized financial carrots; some meaningful sticks now need to be employed as well.'”