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Congress is about to do in one vote what years of shareholder agitation failed to: sharply curb top executive pay at poorly performing companies.
The Wall Street Journal reports today on the details of these restrictions in the new stimulus plan. They do not include the $400,000 cap the Senate had embraced in its version of the bill, but the terms are pretty stiff:
* bonuses can be no more than a third of the total annual compensation an executive receives.
* bonuses cannot vest until the government is repaid.
* no golden parachutes to departing executives.
* bonuses might have to be paid back to the Treasury if misleading earnings or other financial information is given.
* at firms receiving less than $25 million in government rescue assistance, the limits would apply to the highest paid employee.
* those who get $25 million to $250 million would limit the five most highly-compensated executives.
* the ten highest paid executives would be affected at firms receiving between $250 million and $500 million.
* at companies receiving more than half a billion dollars, the top 20 employees get it though generally traders and investment bankers seem to be exempt. (This category seems to include every major bank and AIG.)
* TARP recipients must hold a “Say on Pay” in which shareholders vote annually to approve executive compensation.
It’s a daring way to conduct an experiment, but it will be interesting to see whether the big banks suffer the kind of leadership exodus compensation consultants are fretting about. Or whether their bluff is called.
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