Business
USC Marshall Professor Testifies in D.C.
By Anne Bergman on June 19, 2009 9:36 AM
With U.S. taxpayer outrage still simmering over the big bonuses Merrill Lynch and AIG paid to employees after receiving federal bailout money, USC Marshall School of Business professor Kevin Murphy appeared before the House Financial Services Committee on June 11 to discuss executive compensation, his field of expertise.
Murphy, who holds the Kenneth L. Treffitzs Chair in Finance and teaches in USC Marshall’s department of finance and business economics, is the author of more than 40 articles, cases, books or book chapters relating to compensation and incentives in organizations.
Murphy agreed to appear at the hearing on “Compensation Structure and Systemic Risk” to discuss regulating executive compensation because he was already in Washington, D.C., meeting with the Federal Reserve to discuss the very same issue.
“If executive pay is regulated, the Federal Reserve will do it, as they’re the regulatory body,” Murphy said.
As Murphy testified in front of Congress, his opinion is “that regulating compensation in financial services more broadly will cripple one of our nation’s most important and historically most productive industries.”
The Treasury Department’s counselor Gene Sperling, Harvard Law School’s Lucien Bebchuk and Nell Minnow of The Corporate Library were among the panelists who also testified in front of the committee, which is chaired by Massachusetts Rep. Barney Frank, who’s seeking new laws on compensation structures.
One of Murphy’s concerns is that to base pay on objective assessments of an individual’s performance is impossible and “part of why we’re in this mess in the first place.” For example, Murphy testified, “consider mortgage brokers paid for writing a large number of loans rather than writing loans that the borrowers will actually pay back.
“A solution to this performance-measurement problem is to pay people to write ‘good loans’ and penalize them for writing ‘bad loans,” Murphy said.
He advised that companies not reward short-term results and avoid “paying bonuses all at once. Pay them over a period of time to make sure the performance is real.”
Overall, Murphy argued it’s not “in the taxpayers’ interest to eliminate bonuses or limit the top pay of executives. Banks are losing their best people who are starting their own hedge funds. These are precisely the people who understand the complex interests that got us into trouble. If they leave, there’s no one there who understands what the risks really are.”
After his testimony, Murphy met with the Obama administration’s new pay czar, Kenneth Feinberg.
As for the public outrage over executive salaries, Murphy acknowledged, “The anger is understandable. But we shouldn’t make policy decisions when we’re angry.”
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The Wall Street Journal highlighted the $200 million naming gift from USC Trustee and alumnus David Dornsife and wife Dana Dornsife to the USC Dornsife College, and the $110 million gift from USC Trustee and USC Viterbi School alumnus John Mork and wife Julie to create the USC Mork Family Scholars Program.
KPCC-FM reported that this fall USC will offer Persian language courses for the first time. A $250,000 grant from the Farhang Foundation helped to establish the program. Bruce Zuckerman of the USC Dornsife College said he has many students interested in the Persian language, culture and region. “The Iranian region is one that has great impact on our lives today and has had great impact going back into ancient times,” he said. The story noted that USC and the Farhang Foundation hope to raise more money to create an Iranian studies minor. Payvand also featured the new courses.
American Songwriter ran a Q&A with Christopher Sampson of the USC Thornton School about the school’s Popular Music program, which Sampson founded. He noted that the program has been available as a major in Songwriting since 2009, and has incorporated a diverse range of musical genres. “We have now established a consistent track record of students having professional success to know that the program gets results,” Sampson said. He also highlighted the achievements of Songwriting faculty members Lamont Dozier, Andrea Stolpe and David Poe of the Thornton School.
The Economist featured research by Valter Longo of the USC Davis School finding that short periods of fasting could help cancer patients better tolerate chemotherapy, and may even make treatment more effective. The Globe and Mail (Canada) reported that cancerous tumors are essentially energy hogs. “They need to burn lots of energy just to stay alive,” Longo said. The study was also covered by Irish Independent (Ireland), Magyar Tavirati Iroda (Hungary), Anadolu Ajansi (Turkey), Son Haber (Netherlands), Vietnam+ (Vietnam), Turkish Radio and Television (Turkey) and Romania Libera (Romania).
L.A. Weekly featured research by USC’s Institute for Creative Technologies, which has developed video games based around physical movement for people recovering from strokes or other injuries. The games develop strength in specific body parts. Traditional video games weren’t right for these patients, said the institute’s Belinda Lange. “Often, the fun parts of the game would only be unlocked after a series of other levels, which our patients often couldn’t achieve,” she said. The games are now being tested with physical therapists in three major clinics.
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