Yves Smith describes the best way to change the perverse incentives that drive pure greed on Wall Street.
The best methods to induce a real change in values would be criminal prosecutions, barring lesser miscreants from the industry for life (and we don’t mean young insider traders, but business unit managers for more complex abuses), and measures that come closer to approximating unlimited liability, like clawbacks (if someone who leaves his firm with a big hole in its balance sheet can have pretty much all of his tangible wealth seized, that might focus a few minds).
I don’t think there’s any chance that banker pay will stop rising through the stratosphere without a fundamental change in how the banking system is valued. At this point in time, Wall Street firms just don’t seem to grasp that they did really bad things, things that shouldn’t be done, and millions of people were hurt as a result. As such, they don’t get that their values system needs to be adjusted to conform with being half-decent members of society. This change isn’t going to happen on its own. People need to be put in jail for their criminal behavior and massive bailouts should prompt Congress to have meaningful oversight over these institutions, including over compensation, be it through clawbacks or caps moving forward.