In reforming executive pay, two things need to be resolved:
1. How to properly award competent CEOs while discouraging them to take too much risk that may bring down the whole system;
2. How to align short-term gain with long-term health of the firm.
Most of the current discussion simply focuses on capping executive pay without addressing the above two incentive problems.
Some interesting graphs to share:
a. The long swing of Wall Street Pay
b. A similar graph linking deregulation with pay in financial sector:
(source: see my previous post on the evolution on financial sector)
c. recent trend in Wall Street bonuses:
Finally, a historical review on the extravagant Wall Street pay.