In response to the recent financial crisis, the Obama Administration and the Federal Reserve Board are capping executive salaries and bonuses and imposing a host of new regulations and mandates—all in the name of reducing risk. If the rule of unintended consequences applies anywhere, it applies here. Government pay rules have been tried before and have consistently increased the very salaries and special bonuses they intended to curb. This report explains why the Federal Reserve’s newest proposal will fail like all the rest.