Obama Unveils a $500,000 Cap on Pay on Bailouts


Beyond that, CEOs and other top execs at banks getting "exceptional assistance" could only get restricted stock awards

The Associated Press

WASHINGTON — President Barack Obama is imposing a $500,000 pay cap on some senior executives whose firms receive government financial-rescue money.

Obama said the lavish bonuses for some Wall Street executives was "shameful." The President described the new restrictions on Wednesday, Feb. 4. He bemoaned a "culture of narrow self-interest and short-term gain."

The move comes amid a national outcry over extravagant bonuses for executives heading companies seeking taxpayer dollars to remain solvent.

The new restrictions, described by an Administration official familiar with the new rules, set the stage for the Administration's unveiling next week of a new framework for spending the money that remains in the $700 billion financial-rescue fund.

National Outcry

"If the taxpayers are helping you, then you've got certain responsibilities to not be living high on the hog," President Barack Obama said on Tuesday.

The move comes amid a national outcry over extravagant bonuses for executives heading companies seeking taxpayer dollars to remain solvent.

Call it the maximum wage for some high-earners.

The Administration official, speaking on the condition of anonymity, said the most restrictive limits would apply only to struggling large firms that receive "exceptional assistance" in the future. Healthy banks that receive government infusions of capital would have more leeway.

Firms that want to pay executives above the $500,000 threshold would have to compensate them with stock that could not be sold or liquidated until they pay back the government funds, the official said.

$18 Billion in 2008 Wall Street Bonuses

The President and members of Congress have been weighing various proposals to restrict chief executives' compensation as one of the conditions of receiving help under the $700 billion financial-bailout fund. The desire for limits was reinforced by revelations that Wall Street firms paid more than $18 billion in bonuses in 2008 even while struggling with the economic downturn.

Banks and other financial institutions that receive capital infusions, but are considered healthy, could waive the $500,000 salary cap and the stock restrictions under the new Obama rules. But the companies would have to disclose the compensation and submit the pay plan to shareholders for a nonbinding vote.

The administration will also propose long-term compensation restrictions even for companies that don't receive government assistance.

The proposals include:

Requiring top executives at financial institutions to hold stock for several years before they can cash out.

Requiring nonbinding "say on pay" resolutions—that is, giving shareholders more say on executive compensation.

A Treasury-sponsored conference on a long-term overhaul of executive compensation.

Top officials at companies that have received money from the government's Troubled Asset Relief Program (TARP) already face some compensation limits. But elected officials want to place more caps.

"I do know this: We can't just say: 'Please, please,'" said Senator Claire McCaskill (D-Mo.), who has proposed that no employee of an institution that receives money under the $700 billion federal bailout can receive more than $400,000 in total compensation until it pays the money back.

The figure is equivalent to the salary of the President of the U.S.

Support from Some Top Republicans

Compensation experts in the private sector have warned that such an intrusion into the internal decisions of financial institutions could discourage participation in the rescue program and slow down the financial sector's recovery. They also argue that it could set a precedent for government regulation that undermines performance-based pay.

"It's not a government takeover," Obama stressed in an interview on Tuesday with CNN. "Private enterprise will still be taking place. But people will be accountable and responsible."

Even some Republicans, angered by company decisions to pay bonuses and buy airplanes while receiving government help, have few qualms about restrictions.

"In ordinary situations where the taxpayers' money is not involved, we shouldn't set executive pay," said Senator Richard Shelby of Alabama, the top Republican on the Senate Banking Committee.

"But where you've got federal money involved, taxpayers' money involved, TARP money involved, and the way they have spent it, with no accountability, is getting close to being criminal."


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