ALL BUSINESS: Wall Street CEOs should return pay

We all know how that outsized risk-taking ultimately backfired for their firms. Record profits have turned into massive losses as financial companies worldwide have taken some $250 billion in write-downs due to their free-falling credit-related assets.

Yet the CEOs still are clinging to the compensation they made from busted business models. And not just bonuses from 2008, when the subprime mortgage meltdown and the credit crisis became more acute, but also those from the last few years that were "earned" when profits were soaring.

That's what they should be giving back to shareholders. It would be a genius public relations move.

Too bad it won't happen. Why? Because the clawback provisions in their employment contracts don't require it.

Clawbacks are gaining prominence among public companies, but they usually require pay to be recouped only if financial statements are found to be incorrect or fraudulent, according to Paul Hodgson, a senior research associate at The Corporate Library, an independent corporate governance research firm.

That's different than the situation we are seeing now on Wall Street: A crisis built on the financial firms' overextension of risk. During the housing boom, those companies ramped up their exposure to mortgage-backed securities without properly preparing themselves for what could happen should the housing market turn the other way.

When housing prices tumbled and mortgage default rates soared, they were left in a lurch as credit markets became paralyzed by investors fleeing all risk. The big gains they saw on those investments evaporated fast, wrecking their earnings along the way.

"All of these executives got paid millions upon millions of dollars for creating what turned out to be a firm buster," said Eric Salzman, a Wall Street veteran who now writes the financial-focused MonkeyBusinessBlog.

Take the case of Lehman Brothers Holding Inc. CEO Richard Fuld, who is forgoing his 2008 bonus. News of that move came late in June, as the investment bank was fending off rumors that it was near collapse like its former investment banking rival Bear Stearns.