The financial crisis that we seem to be slowly extricating ourselves from has brought about renewed calls for greater regulation of financial markets. From a proposed Tobin Tax on financial transactions in Britain and other EU nations to America’s “pay czar” Kenneth Feinberg cutting executive pay at Bank of America, the results of such calls are evident. It is true that deregulation is largely to blame for the crisis, both in its creation and its severity. Certainly the crisis has made the previously in vogue belief in the efficient markets hypothesis look questionable — hopefully it will be a long time before the deregulation-crazy right wing gets its hands back on the tiller; in the meantime, perhaps we can do some good.

Still, an approval for the need for increased regulation does not give the government carte blanche to regulate as they see fit. There are still better and worse ways in which this crisis could be prevented in the future, and some of them do not seem to get enough publicity. While we hear much fulmination about increasing taxes on financial firms and regulating banker pay, we do not often hear about plans to regulate the complexity of financial products or to systematically reduce the risky nature of the investment banking business model. Changing pay structures is all well and good, but the current methods that the government is using are largely unhelpful.

Instead of any long term-reliance on a “pay czar” no matter how qualified, it is imperative to create a greater role for shareholders in determining executive pay. Despite Goldman Sachs’ profits in recent times, shareholders have seen a comparatively small payoff compared to the bonanza of bonuses senior bankers receive. Similar stories abound throughout the financial world, where compensation is out-sized compared to stock dividends and re-investment. As such, the ownership of these firms is systematically silent, since it seems economically irrational to support large bonuses that are out of proportion with the dividends received for owning the stock. The only explanation is that shareholders are content to watch the big bonuses roll because they believe that share prices will continue to go up and hence that they will make more money.

This relative shareholder silence and acquiescence to out-size pay packets needs to end. Shareholders should be given a binding vote on executive pay. The current proposal (a bill sponsored by Rep. Barney Frank) is for shareholders to vote on pay annually, but in a non-binding fashion. This is insufficient. As long as shareholders do not have a binding vote, there will be minimal incentive for them to become more activist then they are currently. Throwing them a sop will do nothing to end the largely silent nature of current shareholders. From a logical perspective too, non-binding votes seem to be insufficient. After all, the shareholders are literally the owners of the company. If the owner of a grocery store were told that he would not be allowed to determine at what rate the workers were paid, he would view it as a violation of his property rights. That shareholders, who are owners in the legal sense if not in the managerial sense, are denied a similar right is somewhat laughable.

Of course shareholders today technically could influence the pay of executives. A sufficient shareholder bloc could nominate directors to the board and then have those directors make changes in the company, but such an act requires a high degree of involvement and expertise. Major activist shareholders like Warren Buffet can make changes, but the everyman is largely left out of the equation. It makes no sense that only shareholders with a certain number of shares of money can influence the course of events in the company.

To draw another analogy, it would be akin to saying that minorities in a democracy should have no say because there are not enough of them to make their voice heard effectively. It is even more problematic since organizing shareholders of a company is even more difficult than organizing a political party, since there is less clarity with regards to whom you would be lobbying if you supported a particular cause. Hence, having binding shareholder votes on company pay seems like a good way to expand regulations in a manner that allows the market to function without major disruption.

There are some obvious problems, however. It is important to note that this could cause some interesting situations where corporations could be subject to shareholder raids, since shareholders might be owners of shares simply for short-term profit rather than long-term company growth. As such, if shareholders could force very low pay for executives, prompting a departure of senior staff, they might be able to force the price of the shares down, making a great deal of money from shorting the stock (or betting that the stock will fall). This sounds far-fetched, but in the world of corporate raids and big stock bets, such possibilities are no doubt worth considering. If nothing else, the crisis has reminded us that the men and women who deal in financial risk for their living have a taste for exotic derivatives and outlandishly complicated financial products. A little corporate raiding would be somewhat vanilla by contrast. Still, it is important that the regulatory framework that emerges from these turbulent times move away from centralized government control and towards a more market based solution.

Despite the market’s many failings, it is equally problematic to continue to rely on the cumbersome and inefficient federal government. The end-goal of regulation is to ensure transparency and the free flow of information such that people can make informed investment decisions into products that are not opaque. Regulations that serve only to empower the government are less valuable than those that empower us all.