By Don Miller
Amid national outrage over revelations that Wall Street firms paid out more than $18 billion in bonuses while seeking massive taxpayer bailouts, President Barack Obama yesterday (Wednesday) announced plans to impose a $500,000 yearly cap on executive pay.
With his new Treasury Secretary, Timothy Geithner, at his side, Obama harshly criticized executives at major financial firms “who turned to the American people, hat in hand, when they were in trouble, even as they paid themselves their customary lavish bonuses.”
The President’s proposal is broadly seen as sending a blunt message that there are no longer two sets of rules in Washington, one for the “powerful,” and one for ordinary taxpayers, reported Tribune Interactive. Instead, “Wall Street will have to trim its sails if it wants Federal help.”
“There is a deep sense across the country that those who were not … responsible for this crisis are bearing a greater burden than those who were,” said Treasury Secretary Geithner.
Describing the financial executive’s bonuses as “shameful,” the President laid out a compensation reform plan he had promised as part of a package of stricter regulations on the financial industry.
The pay cap would lay the groundwork for next week’s unveiling of a new framework for spending the money that remains in the $700 billion Troubled Assets Relief Program (TARP) financial rescue fund.
The new rules represent a dramatic intervention into corporate America because they dictate 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.
The rules also put restrictions on golden parachutes – the lavish severance packages common for senior executives – and require more transparency for costs such as private jets, corporate “retreats,” office renovations and conferences.
“We’re taking the air out of golden parachutes,” Obama said.
Firms that want to pay executives above the $500,000 threshold would have to use stock that could not be sold or liquidated until they pay back the government funds.
Generally healthy institutions would have more leeway, but will also face the $500,000 limit if they’re getting government help. That cap can be waived with full public disclosure and a nonbinding shareholder vote, according to information provided by an administration official to Reuters.
Companies that have already collected money from the Treasury bailout begun by the Bush administration will have to show that they have complied with a current set of restrictions and reforms on executive pay and lending requirements "and agree to strict monitoring and oversight going forward."
To consolidate opinion, Geithner will hold a conference with shareholder advocates, investors, executives and other interested parties to discuss executive pay reform at banks and help set guidelines for the future, the official said.
Compensation experts in the private sector have warned that 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.
But even some Republicans, appalled by the arrogance of company decisions to pay bonuses and buy airplanes while drinking from the public trough, have few qualms about restrictions.
“In ordinary situations where the taxpayers’ money is not involved, we shouldn’t set executive pay,” Sen. Richard Shelby (R-Ala.), the top Republican on the Senate Banking Committee, told MSNBC.
“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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