The executives and compensation experts quoted treat this as an insoluble dilemma. But it's no dilemma, but merely a problem, and one, in fact, with a ready solution: cap executive compensation at ALL companies, or (to be less interfering) slap a 90% tax rate on all earnings over a certain point.
Update: Simon Johnson and James Kwak point out that retaining all those employees who made the messes probably isn't a good idea, anyway. Money:
When insiders have broken a financial institution, the most direct remedy is to kick them out. Traders are hardly in short supply, and you don’t need to rely on the ones who made the toxic trades in the first place. Companies must always plan around the potential departure of even their star traders, or they are certain to fail. A.I.G. does not need to keep all of its traders, especially since it takes far fewer people to unwind a portfolio than to build it up.