Fed official damns executive greed

By Peter G. Gosselin
Los Angeles Times

WASHINGTON — A senior Federal Reserve official yesterday used a Sept. 11 memorial service on Wall Street to excoriate U.S. corporate executives for paying themselves too much, and called on business leaders to cut their own compensation.

Quoting the biblical admonition to "love thy neighbor as thyself," William McDonough, president of the New York Federal Reserve Bank and a possible successor to Fed chairman Alan Greenspan, said executive pay has ballooned beyond all reason and now threatens public support for free-market institutions.

"Sadly, all too many members of the inner circle of the business elite participated in the over-expansion of executive compensation," McDonough told an audience at Trinity Church near the World Trade Center.

The piling-on of stock options and bonuses, which was said to align the interests of top executives with their stockholders', has proven woefully misguided, he said.

"It is reasonably clear now that this theory has left a large number of poorer stockholders — especially including employee stockholders — not only unconvinced, but understandably disillusioned and angry," he said.

McDonough is not the first to criticize executive pay. Both Greenspan and Goldman Sachs chairman Henry Paulson Jr. made similar comments earlier this year. But by linking the issue to Sept. 11 and framing it in moral terms, rather than as simply a business decision, McDonough may have raised the stakes in the debate over who runs America's corporations, and for whose benefit.

On top of Enron and other disclosures of corporate scandal and greed earlier this year, there has been a recent rash of disclosures about corporate figures such as former General Electric CEO John Welch Jr. winning cushy consulting contracts and perks like the use of corporate jets even after they have retired.

"The one thing you hope for from leaders of the business community is that they realize markets don't run on money, but trust and a sense of fairness," said Nell Minow, a veteran shareholder activist. "That trust has been destroyed this year."

McDonough, 68, has headed the New York Fed, the most powerful of the 12 Fed banks around the country, since July 1993 and is vice chairman of the Fed's chief policymaking body.