How Much Should Bank CEOs Earn?

Posted by: Chris Palmeri on September 23, 2008

A movement to include limits on executive pay as a clause in the new bank bailout bill is gaining support from both ends of the political spectrum. House Democrats, including Financial Services Committee Chairman Barney Frank, want limits. So does the liberal Institute for Policy Studies which is calling for a maximum pay for executives at bailed-out firms of 25 times that of the lowest-paid employee. If the lowest paid employee made $30,000 a year, that would mean the most an executive could earn was $750,000.

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Republican Party presidential contender John McCain did that one better yesterday, saying: “The senior executives of any firm that is bailed out by Treasury should not be making more than the highest paid government official.” The president is the highest-paid federal official, earning $400,000 a year, plus $50,000 for personal expenses.

President Bush hopes to provide up to $700 billion to buy troubled mortgage assets from banks. The proposal is being hotly debated in Washington this week. I haven’t seen any estimates yet as to how many institutions might take advantage of the government’s offer. If such a provision were included it would likely apply to other institutions that have recently sought government aid, including IndyMac and AIG.

Regulators already blocked $24 million in severance payments to former Fannie Mae CEO Daniel Mudd and former Freddie Mac CEO Richard Syron.

Reader Comments

Jim D

September 23, 2008 7:07 PM

Wrong question.

The question is: "How much should people earn in the employ of companies that exist on the backs of taxpayers?"

If you take the bailout, you're in that category.

Correctly phrase the question, and the answer becomes obvious. Misphrase the question, as you do above, and the answer is harder to come by. So, the question is: did you deliberately misphrase the question?

Well, did you? Or was it an honest mistake?

And while we're at it, let's add another question:

"How big should we allow dividends to be, if the companies are getting them on the back of the American taxpayer?"

Again, I believe the answer is obvious.

Carl

September 25, 2008 2:07 AM

This issue, as they say, is a total non-starter. In an article elsewhere on the BW website, the author states, with total accuracy, that such a proposal would be almost impossible to enforce. Paulson is saying we can revisit the pay issue in later legislation, but you all know that's never going to happen. Congress will recess on Friday, then the news will be dominated by the campaign, then the election, then the Holidays, then the new president and congress, and all this will have been forgotten. By the way, the severeance payments for Mudd and Syron are not blocked, they are suspended for now. Same as for Merchant and Duncan, who left recently with over $4 million each.

Phil P.

September 25, 2008 2:59 PM

All they should get are their walking papers. They have caused enough damage to the economy. Not one cent of my tax money. Nada!

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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