A new analysis from The Wall Street Journal shows that pay czar Kenneth Feinberg raised the salaries of most of the executives over which he has jurisdiction. The paper reports that base salaries climbed to $437,896 or 14% among the managers pay packages that he reviewed.

If Feinberg’s goal is to make executives at financial companies that owe the government money think long term, then he must be tying hundreds of thousands of dollars per person to stock options, restricted stock grants, and cash bonuses.

Feinberg’s move still does not address the most problematic issue of restricting pay packages. The best exectuives and traders will still leave to go to firms that face no compensation restrictions. That become very clear when former AIG (NYSE:AIG) CEO Hank Greenberg hinted that he had created a new financial company and was aggressively recruiting the best talent from AIG to staff it.

Hedge funds like SAC as rumored to be taking talented traders from Wall St. firms.. UBS (NYSE:UBS), headquartered in Switzerland, does not face federal pay limits. It has just hired Robert McCann to run its American wealth management business. He formerly worked at Bank of America (NYSE:BAC) which he joined as part of the Merrill Lynch takeover. At B of A his pay package could have been restricted by Feinberg.

It cannot be said too often. The government’s restriction on executive pay packages on Wall St. are bound to cause some of the most valuable managers to leave firms over which the government has compensation control. It will undermine the value of the taxpayers investments in these companies.

What the government is overlooking is that the boards at the companies where it can control pay packages have largely been picked by the Treasury and the Fed. They know better than to give out compensation that is not based on solid performance. A pay czar’s role is redundant.

Douglas A. McIntyre

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