Last year's spectacular collapses spurred a thoughtful dialogue over executive compensation, but the debate quickly took a 12-month detour.

Considered observations about the mismatch between risk and reward, of the short-term payouts that executives were collecting for long-term bets with unforeseen consequences, soon gave way to populist outrage over yearend bonuses and perks like corporate jet travel.

Yet the original destination — ensuring the safety and soundness of banks, as opposed to stopping executives from earning "too much" — is starting to come back into focus. Slowly, policymakers and industry executives are talking more about how best to encourage appropriate risk, minimize unintended consequences and create an unbiased system for approving compensation arrangements.

Sky-high bonuses are "something people get excited about," said Ken Werner, a tax lawyer at Richard Kibbe & Orbe LLP in New York who advises companies on compensation plans. "But I don't think any of these problems were caused by pay being too high. It was because of the way pay was calculated." (For a sampling of reform ideas, see related story.)

Treasury Secretary Timothy Geithner recommended in June that companies ask executives to hold their company stock for longer periods or find other ways to similarly align pay with long-term-value goals. The Federal Reserve Board is now working on a proposal to issue compensation guidelines that take a longer-term view of risk when determining executive incentives.

Last week, leaders of the Group of 20 developed economies agreed that banks should tie bonuses to the amount of capital they hold. They also called on banks to eliminate multiyear guaranteed bonuses and to defer incentive pay or subject it to clawbacks that would protect companies from risk-taking that proves damaging later on.

But the G-20 declined to endorse a French proposal to cap pay in the industry, underscoring the difficulty that officials have encountered in trying to develop more prescriptive rules on pay.

It may be impractical to expect companies to follow anything more specific than a general set of guidelines on pay based on sound corporate governance principles. This was one conclusion reached this month by a task force convened by the Conference Board to examine the executive pay issue.

"Given the differences among companies and even within the same company as its situation and strategy change over time, each company must have the flexibility to set (and change) its business strategy and then design unique executive compensation programs that promote and reward achievement of the objectives for the operative strategy," the task force noted in its findings. "Moreover, rules cannot substitute for the good judgment required to make sound pay decisions."

Some companies have restructured their pay policies. Morgan Stanley in December told employees that a portion of their deferred bonuses would be awarded in cash, subject to clawbacks over a three-year vesting period. PNC Financial Services Group Inc., which historically awarded executives 75% of their bonus in cash and the rest in stock, paid only stock in 2008 to three top executives and capped the cash portion for three others.

In an interview last week, PNC Chairman and CEO James E. Rohr said his company has long adhered to many of the principles guiding discussions on pay reform.

"Our philosophy has always been to reward our employees with bonuses based on performance, and we always extended parts of the bonuses over time," Rohr said. "We've had clawbacks in our asset and liability compensation system for many years."

Unlike many of its big competitors, PNC is a small player in the Wall Street-style trading businesses that were notable first for the wealth they generated for individual employees and, later, for the damage they caused to the financial system.

"It's difficult to perfectly align incentives with employee compensation, but commercial banks have done a better job of it than their investment banking counterparts," said Richard H. Neiman, superintendent of the New York State Banking Department. "At a broader level, we should be asking if the answer to the executive compensation question is, as [former Fed] Chairman Paul Volcker recently alluded [to], for banks to focus on their traditional role of lending and creating liquidity, even if [it is] less profitable."

Volcker has pressed for a cleaner separation between commercial and investment banking.

But as Washington Mutual Inc.'s failure a year ago illustrated, lenders can be done in by decisions made far away from Wall Street's trading desks.

CEO Kerry Killinger, who was paid $43 million combined in 2005 and 2006, aggressively championed option adjustable-rate mortgages during that period, and they helped sink the company.

The question now for banks is how to sidestep such risks. The answer may start with a pay structure that holds executives accountable, rather than one that simply enriches them.

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