Stiff Pay Restrictions on Executives in Stimulus Package

Posted by: Nanette Byrnes on February 13, 2009

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.

Reader Comments

rottengob

February 13, 2009 7:25 PM

"investment bankers are exempt." Doesn't this say it all? If you substitute Goldman Sachs for every exempt category the whole rotten plan becomes clear: protect pals at Goldman. When is the FBI and other agencies going to get off their butts and start a real investigation, including extensive wiretaps and other state of the art techniques?

RG

February 14, 2009 11:10 PM

Why do bank and wall street execs think they deserve their salary and bonuses they have received? Their industry and companies are in a shambles. When index funds out perform most managed funds, why pay the managers? If sales person sell shabby products, why do they expect compensation for duping the public? People in power are hard to shame because they are puffed up with self-importance. The finance and banking sectors put the public's money at risk... to line their own pockets.

Mike Reardon

February 15, 2009 4:38 PM

The State and Local tax implications can only be a long term negative, those Wall Street bonuses of $18 billion for last year have got to be the last break NY State is going to get for some time.

Even gaining housing at an executive level and mobility will be impacted. Getting into the whole D.C. area, or around NY have to be a pain with these restriction. If your income is cut and you are reassigned it may be an issue. A lot of extra’s will be put into support for corporate housing for the next 8 years.

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