SEC, Citibank Problems Stem from Compensation Issues

While a federal judge’s rejection of a $285 million settlement between the Securities and Exchange Commission and Citigroup came as a shock to some, the underlying issues that may have led to the judge’s decision have been a concern for a while.

The problems in this case are a result of broken management practices at the SEC. More specifically, there is a lack of accountability in the SEC's personnel policies.

The SEC employees union has successfully resisted meaningful pay-for-performance initiatives by previous chairmen under both Democratic and Republican administrations. Without meaningful oversight, employees have little incentive to follow up on cease and desist orders from prior cases or to focus investigations on circumstances that cause real damage to financial markets but don't necessarily make newspaper headlines.

It’s a sad irony that the one agency focusing its attention on executive compensation can't institute meaningful reform within its own employee compensation structure.