Banks Will Find Ways Around Obama's Pay Cap

Barack Obama’s attempt to curb executive pay may please the outraged investing public, but banks will find the loopholes—and possibly create even more vexing problems in the future, writes Jason Zweig of the Wall Street Journal. To begin with, the rule won’t dent the pay of traders, hedge-fund managers, or derivative gurus—just the executives who are supposed to control them. This "isn't going to make the investing world any safer."

Firms could spin off their investing arm while retaining an ownership share—essentially outsourcing. This dodges pay restrictions but puts taxpayer dollars at the original firm at greater risk. Also, those executives who do accept restrictions can still earn preferred options that can be cashed in only when the government is paid back; they’ll be tempted to take huge risks to speed up their payday, knowing Uncle Sam will eat any losses. “Classic trader’s option,” said one executive. “Heads I win, tails you lose.” (More executive compensation stories.)