Bill Gates said he believes Wall Street pay is “often too high” and that US government ownership of American International Group Inc worries him because it has devalued the giant insurer.
The billionaire Microsoft founder, who retired in 2008 to concentrate on philanthropy, blamed a 1993 US law that capped executive salaries at $1 million and warned that further bids to try limit Wall Street pay could also backfire.
“It was a bad milestone in controlling executive salaries when that $1 million cap went on,” Gates told a discussion on philanthropy at the 92nd Street Y cultural and community center in New York City.
“The compensation problem is a very interesting problem. I do think compensation is often too high, but it's a very tough problem to solve,” said Gates, who was also ranked by Forbes on Wednesday as the 10th most powerful person in the world.
The $1 million limit on salaries encouraged companies to instead give executives lucrative stock options, sending pay to vast new heights.
US officials are again pushing for Wall Street pay practices to be reformed to curb the excessive risk-taking that fueled the crisis and pushed the financial system to the brink of collapse last year.
Huge pay packages for banks and other financial firms have ignited public anger at a time the U.S. unemployment rate is at a 26-year high of 10.2 per cent.
“What happened was a surprise to people and it comes from everybody being so optimistic and over ebullient and having a view of risk and price appreciation that was completely out of kilter,” Gates said of the financial crisis.
The US government spent hundreds of billions of dollars during the crisis bailing out several Wall Street firms, including Bank of America Corp, Citigroup Inc and AIG which is now 80 per cent owned by US taxpayers.
“I do worry that when the government owns an entity like AIG that you can greatly devalue that entity by having it essentially have to behave as though it part of the government,” Gates said.
“It’s an unnatural situation when the government owns a lot of a private company. Unfortunately there is a view that that should exist for a long term,” he said.