Earlier this week, the Securities & Exchange Commission announced a proposal that would grant it the power to regulate Wall Street bonuses. While you might disagree with the philosophical and economic ramifications of such a move, when you rationally look at the way many financiers have behaved, the proposal shouldn't surprise you.

Too many major players at financial firms have learned woefully few lessons from the harrowing financial crisis in 2008. The New York State Comptroller's Office recently revealed that overall Wall Street pay increased 6% in 2010. A Deloitte Touche Tohmatsu survey further found that just 37% of surveyed companies had meaningfully addressed risk-management concerns in their compensation policies.

Filthy lucre
In response to this indifference, the SEC seems ready for a fight. The commission has suggested that it may require financial companies (including brokerages, major banks, and hedge funds) to disclose detailed information about bonuses. The SEC could then decide to block any payouts that seem excessive.

Anyone who has followed corporate governance issues knows that it can be hard to define "excessive." But as Supreme Court Justice Potter Stewart said of pornography: "I know it when I see it." Faced by the apparent threat of economic Armageddon, the American people got blackmailed into bailing out banker bigwigs. Rather than displaying humility and gratitude, the executives in charge of those banks kept demanding the same rich rewards they'd always received. In the face of such naked greed and lurid indifference, I'm not surprised that the SEC seems ready to start swinging.

Shake your moneymaker
The SEC probably won't propose similar scrutiny on compensation beyond major financial firms. Most industries don't pose the kind of systemic risk that those companies do. But even if regulators don't insist that companies more closely tie pay to performance, shareholders increasingly will.

Perhaps to prevent government intervention and shareholder fury, several major companies recently docked their underperforming executives' pay:

  • BP (NYSE: BP) has told three top executives to forget about bonuses following the Deepwater Horizon disaster and subsequent Gulf oil spill last year.
  • Johnson & Johnson's (NYSE: JNJ) CEO William Weldon saw his 2010 bonus shrink by 45% after recalls battered his company's performance.
  • Bank of America (NYSE: BAC) has announced that it will neither give pay raises nor award cash bonuses to top management team members this year.

In addition, Beazer Homes (NYSE: BZH) CEO Ian McCarthy will pay back $6.5 million and relinquish tens of thousands of shares of his company's stock. That agreement stems from a settlement with the SEC, which contends that the company released fraudulent financial statements in 2006.

Time to clean up the act
I find it pathetic that companies need the threat of regulatory intervention before they start to curtail obscene pay without adequate performance. Whether they like it or not, more businesses need to implement merit-based pay for top executives, and introduce incentive schemes that reward long-term excellence rather than short-term risks. Let's hope we won't need such threats to inspire greater humanity -- and humility -- in our corporate leaders. Shareholders deserve nothing less.

Check back at Fool.com every Wednesday and Friday for Alyce Lomax's columns on corporate governance.

Motley Fool Options has recommended a diagonal call position on Johnson & Johnson, which is a Motley Fool Inside Value pick and a Motley Fool Income Investor choice. The Fool owns shares of Bank of America and Johnson & Johnson, and through a separate account in its Rising Stars portfolios, the Fool has a short position in Bank of America. Motley Fool Alpha owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned; for more on this and other topics, check back at Fool.com, or follow her on Twitter: @AlyceLomax. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.