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Today, President Obama and Treasury Secretary Tim Geithner plan to announce a new executive compensation plan at the White House, the New York Times is reporting. The report says that the Obama administration is expected to impose a cap of $500,000 for top executives at companies that receive large amounts of bailout money, and would limit them from receiving bonuses above their base pay, beyond normal stock dividends. (Other reports say long-term compensation such as restricted stock would be allowed.) The new plan, it appears, would only apply to companies that come back for further funds, and it was not clear whether it would apply to all companies or those considered “exceptional.”
But what does this mean for companies far from the chasms of Wall Street or the snows of Detroit? It could have a big impact—at least over the long term. Perception is playing an escalating role in executive pay. And that works both ways. On the one hand, new rules in 2007 from the SEC, which required companies to disclose perks worth more than $10,000 in a company’s proxy, prompted companies to cut back on shame-inducing perks like country club dues. (Corporate jets, of course, endured.)
But at the same time, it’s all relative. As bank CEOs pulled down massive pay packages in recent years—four of the 10 best-compensated CEOs in 2007, according to this analysis, headed financial services firms—compensation at other companies could be huge, but still look small in comparison. What’s a meager $12 million—the median total actual compensation in 2007 for the largest 269 public companies, according to the Corporate Library—when John Thain was paid nearly $84 million? Many compensation experts believe the extreme pay packages on Wall Street have long propelled the rest of executive pay upward, too. A rising tide lifts all boats.
So what will happen if top executives on Wall Street are only bringing home $500,000? It’s too early to tell. But if that happens, I’d guess there could eventually be plenty of boards in other industries whose CEO’s pay, once perceived to be middle-of-the-pack, suddenly thrusts them uncomfortably higher onto those annual lists of the highest-paid CEOs. If current economic conditions endure, the risk of shame could one day do even more to dampen pay across the board than any regulation.
UPDATE: How does that $500,000 salary cap compare to what CEOs of public banks receiving TARP made recently? Equilar, a research firm specializing in executive compensation, ran the numbers for fiscal year 2007, the last year for which a full set of proxy statements are available.
Companies with total assets over $10 Billion
• Average Base Salary: $844,229
• Average Cash Bonus: $2,529,229
• Average Benefits & Perquisites: $292,238
• Average Equity Awards: $ 7,407,394
• Average Total Pay: $11,073,090
Companies with total assets between $1 Billion and $9.9 Billion
• Average Base Salary: $397,162
• Average Cash Bonus: $134,717
• Average Benefits & Perquisites: $115,201
• Average Equity Awards: $ 211,674
• Average Total Pay: $858,754
Companies with total assets under $1 Billion
• Average Base Salary: $247,135
• Average Cash Bonus: $76,339
• Average Benefits & Perquisites: $38,514
• Average Equity Awards: $ 22,023
• Average Total Pay: $384,011
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