By Silla Brush
Posted: 02/13/09 09:26 PM
As they put the finishing touches on the $787 billion stimulus package to jolt the broader economy out of recession, House and Senate lawmakers decided to throw in a new restriction on executive pay for financial firms receiving federal bailout money.
Several senators had attempted to legislate a cap on executive pay as an amendment to the stimulus bill, but until the bill was finally introduced financial services lobbyists were not sure exactly what restrictions would materialize. The bill, if passed, would come ahead of the efforts on executive pay that President Obama laid out earlier in a statement. Obama had wanted to cap executive pay for firms receiving "exceptional assistance," which he said would include Citigroup, Bank of America and AIG, at $500,000.
Tucked in the 1,400-page stimulus bill is a sliding scale restriction that was supported by Senate Banking Committee chairman Chris Dodd (D-Conn.). The restrictions vary depending on the amount of money that a firm receives under the $700 billion bailout package. Generally, the restriction limits senior officials from receiving any bonus that is worth more than one-third of his annual compensation package. Any bonus must also be paid in restricted stock.
"The decisions of certain Wall Street executives to enrich themselves at the expense of taxpayers have seriously undermined public confidence in efforts to stabilize the economy," said Dodd. "With vigorous oversight by the Treasury Department and by Congress, these tough new rules will help ensure that taxpayer dollars no longer effectively subsidize lavish Wall Street bonuses."
The restriction eases the burden on small firms. For firms receiving less than $25 million in aid, the provision applies only to the top official. But for firms receiving more than $500 million in help, the provision applies to the 25 most senior officials.
None of the new rules would apply to executives who have written contracts signed before Feb. 11, 2009. However, the bill includes retroactive language applying to firms already receiving bailout money. It says the Treasury Secretary will review all compensation practices for "senior executive officers" and the next 20 "most highly compensated employees" of each firm receiving help under the bailout package to determine "whether any such payments were inconsistent" with the new rules on executive pay. The bill also says the Treasury Department could negotiate with previous bailout recipients for reimbursements.
The legislation includes a "clawback" provision for false statements of earnings or revenues for chief executives and the 20 most senior officials at any company receiving bailout money. And the legislation also prohibits "golden parachutes" for CEOs and the top five highest paid officials while a firm receives government aid. Those are similar provisions to Obama's statements on executive compensation. By Elana Schor - February 13, 2009, 9:17AM
It took until most of America had gone to bed, but the Democratic Congress finally posted its stimulus deal for the public to peruse at around 11:45pm. You can download the full text of the measure, split into four parts,
at this site (see the left-hand links).
Several contentious provisions were tweaked in the waning hours of Thursday, reflecting changes from the leaked summary
we'd showed you. But the biggest news is a question that was unresolved until the very last minute: the fight to keeping the Senate stimulus' strong executive pay limits resulted in one victory.
Sens. Ron Wyden (D-OR) and Olympia Snowe (R-ME) lost their push to claw back bonuses paid to banks receiving government bailouts, but Senate Banking Committee Chairman Chris Dodd's (D-CT) CEO pay limits did survive. It's not as stringent as the Wyden-Snowe limits, or Sen. Claire McCaskill's (D-MO) plan to cap bailed-out bank salaries at $400,000, but it's a win nonetheless.
Read a summary of Dodd's provisions, which are expected to become law by Monday, after the jump.
The amendment puts an end to compensation policies unfair to American taxpayers by banning:
* Compensation incentives for senior executive officers "to take unnecessary and excessive risks that threaten the value" of the company.
* "Golden parachutes" for senior executive officers or the next 5 most highly-compensated employees.
· Compensation plans that would encourage manipulation of the company's reported earnings to enhance an employee's compensation.
The amendment also cracks down on:
· Bonuses, retention awards and incentive compensation. For institutions that received assistance totaling less than $25M, the bonus restriction applies to the highest compensated employee (top 1); $25M-$250M, applies to the top 5 employees; $250M-$500M, applies to the senior executive officers and the next top 10 employees; and more than $500M applies to the senior executive officers and the next top 20 employees (or such higher number as the Secretary determines is in the public interest).
* Compensation paid out wrongfully in the past. The Secretary of the Treasury must review past compensation paid to the top 25 employees of TARP recipients and to seek to negotiate for reimbursements if those payments were contrary to the public interest or inconsistent with the purposes of the Act or the TARP.
The amendment includes tough new rules for TARP recipients, who must:
* Clawback any bonus, retention award or incentive compensation paid to senior executive officers or the next 20 most highly-compensated employees based on statements of earnings, revenues or other criteria later found to be materially inaccurate.
· Certify that they are complying with these executive compensation rules.
· Establish a Compensation Committee of the Board established that has all independent directors; the Compensation Committee must meet at least semiannually to evaluate employee compensation plans in light of risk posed to the company.
· Institute a company-wide policy regarding excessive or luxury expenditures, including entertainment or events, office and facility renovations, private jets, etc.
· Institute "Say on Pay" or an annual shareholder vote on approval of executive compensation.
Edited to add background:
Despite Treasury's New Rule, Senators Aren't Giving Up Their Push to Cap CEO Pay
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