As some financial institutions are still within the indentured servitude of the federal government, while others are not, we can see the free market consequences of federal intervention in executive pay schemes. Those institutions still under government regulation, such as Citigroup ( C), are finding that some of their top talent is being recruited by competing organizations that no longer have such strictures.

For example, Goldman Sachs ( GS) announced a proposed budget of $20 billion for executive bonuses in 2009 -- an increase to $700,000 a person from $360,000 a person in 2008. Similarly, Morgan Stanley ( MS) has set aside between $11 billion and $14 billion for executive incentives.

At the same time, a great deal of uproar has been heard about Citigroup's decision to raise base salaries by as much as 50% and in some cases offer guaranteed contracts in order to offer competitive compensation packages. The complaint has been that employees of Citigroup will in many cases make as much, if not more, than they did prior to the bailout and that the executives at Citigroup are speaking out of both sides of their mouth. On the one hand, they greatly reduce bonuses; on the other hand, they greatly increase salaries.

I had a member of the press ask me last week if I thought we had any right to feel that the financial institutions were gaming the system. For example, now that Goldman has paid back federal money, she asked, do we have a reason to even comment on their compensation practices? If Citigroup wants to raise salaries to offset bonus compensation, is it even our business? My question in return was, "Did we not learn anything from the past few months?"

If "we" means the federal government, then I would say there is not much about which to complain. The deal for the companies was to pay back the money and they get to make their own decisions. They did and they do. But if "we" in her question means the American people, then I would say we absolutely have a right to demand a change in compensation practices. That's the way the free market works. When shareholders decide that excessive imperialism on the part of top executives lead to the erosion of value, we not only should demand change, it's our responsibility to do so.

In a recent Harvard Business Review blog, Dan Delves offered four principles for assisting corporate boards of directors in executive compensation issues. In summary these are:

1. Fairness: Are pay and incentives consistent throughout the organization and related to performance?

2. Accountability: Are pay and incentives related to business performance of the individual, both short- and long-term?

3. Alignment: Does compensation reflect the company's mission and purpose and reward those who are effective stewards of the long-term value, reputation and viability of the company?

4.Transparency: Are compensation structures clearly and openly communicated internally and externally?

So, look at Goldman Sachs for a moment. Is its pay structure fair in the terms described by Delves? Probably. Goldman Sachs has a compensation structure that pays bonuses throughout its organization and it is likely it has formulas in place to ensure that there is consistency in the way these bonuses are delivered.

But does it have accountability? From a short-term perspective, the answer is yes. Employees receive bonuses based on their contribution to returns. The problem is that you and me invest our money for the long term, but the rewards are based on short-term results. Herein lies the most obvious problem.

But then, is the pay at Goldman Sachs in alignment with the company's mission and purpose? Yes. Perhaps unfortunately, since it appears that the company is again focused on the greatest return in the shortest amount of time. Are the people receiving the money effective stewards of long-term value, reputation and viability? Again, it appears that long-term anything is irrelevant in the compensation structure of Goldman and Morgan Stanley.

Finally, is there transparency? To some degree, there is. We are aware of these plans much earlier and in greater detail than we would have been in the past. Of course, it is hard to judge true transparency because you only know what you know. Whether or not these compensation packages are completely communicated will be seen in retrospect since, without the federal handcuffs, there is limited accountability for decisions regarding compensation.

And what about poor Citigroup? It's competing now for talent that is easily swayed by the high rewards offered under the Goldman and Morgan Stanley structure. Yet Citigroup desperately needs talented people in order to stay competitive and make its way out of the club of government-dependent financial institutions. I would suggest Citigroup has little choice but to raise salaries. It already lost some of its key people and it stands to lose more as long as the bank isn't able to compete on a level playing field.

Citigroup may actually have it right in terms of the focus on salary vs. bonus. But to make it work it will have to create very high performance standards to go along with the compensation. If it raises compensation arbitrarily, it will have created a commodity market that it will never win (i.e., competing entirely on the price of compensation). If, on the other hand, it offers lucrative salaries to the best of the best with greater surety and stability than the bonus structure, Citigroup might be able to keep the people who are less like day traders and more like finance professionals.

Regardless of the compensation approach used, we as shareholders in a free market economy will always have the right to demand accountability. We do it through our voice, through our engagement with the various boards of directors, and more importantly, through where we choose to put our money. If you don't believe your investment firm has integrity in its internal practices, vote in the way that makes the biggest difference -- take your money somewhere else.
Leadership Development Specialist, L. Todd Thomas ("Dr. Todd") PhD, M.S, M.A, is Founder of IMPACT Consulting and Development . Dr. Todd holds a PhD in Human Communication, Masters in Educational Psychology and a Masters in Interpersonal Communication. He was a professor at North Carolina State University and Indiana University before leaving for the corporate world. He led Organizational Learning at Rockwell Avionics and was the executive responsible for Organizational and Executive Development at Daimler Financial Services for 10 years. Dr. Todd has coached and consulted with over 3000 leaders from 40 different countries spanning 4 continents. He is a speaker, seminar leader and the author of "Leading in a Flat World: How Good Leaders Become Greatly Valued." Other titles include "Life Lessons for Leaders" and "Stop Wasting Your Time: Creating High-IMPACT Meetings" as well as the "Leadership Integrity Quotient(tm)" leadership assessment.