For instance, the Squam Lake Working Group (a non-partisan group convened by Professor Ken French of Dartmouth College after the recent crisis to propose reforms) has suggested not only holding back some portion of top management bonuses and reducing them if there are future losses—much like the clawbacks I discussed earlier—but also writing these “holdbacks” down if the firm has to be bailed out in any way. Thus the holdbacks would serve as junior equity and give strong incentives to management to take precautions to avoid a bailout.
