Obama Administration To Issue Executive Pay Limits

The Obama administration plans to limit pay to $500,000 a year for executives of government-assisted financial institutions in a new get-tough approach to bankers and Wall Street, a senior administration official said Tuesday.

Obama plans to announce the new limits with Treasury Secretary Timothy Geithner at the White House on Wednesday.

"If the taxpayers are helping you, then you've got certain responsibilities to not be living high on the hog," President Barack Obama said in an interview with "NBC Nightly News".

An administration official familiar with the new restrictions 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.

The official, speaking on the condition of anonymity because the plan had not yet been made public, said 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 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.

Banks and other financial institutions that receive capital infusions, but are considered healthy, could waive the $500,000 salary cap and the stock restrictions. But they 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 official said.

The proposals include:

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

— Requiring "say on pay" nonbinding shareholder resolutions.

— 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 already face some compensation limits. But elected officials want to place more caps, a sentiment reinforced in recent days by revelations that Wall Street firms paid more than $18 billion in bonuses in the midst of the economic downturn in 2008.

"I do know this: We can't just say, 'Please, please,'" said Sen. 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 United States.

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 undermined performance-based pay.

Obama, in an interview with CNN Tuesday, insisted that the restrictions would not amount to excessive government intrusion.

"There are mechanisms in place to make sure that institutions that are taking taxpayer money are not using that money for excessive executive compensation," he said. "It's not a government takeover. Private enterprise will still be taking place. But people will be accountable and responsible. And that's what we have to restore in the financial system generally."

And some Republicans, angered by company decisions to pay bonuses and buy airplanes, have few qualms about restrictions, especially if they are temporary.

"In ordinary situations where the taxpayers money is not involved, we shouldn't set executive pay," said Sen. Richard Shelby of Alabama, the top Republican in 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."

The administration's compensation announcement will precede its more comprehensive plans for how to spend the remaining $350 billion in the TARP program. Treasury Secretary Timothy Geithner and Obama's economic team have been revamping the framework of the program and are expected to announce the changes next week.

Officials are considering a government-run "bad bank" that would take on the bad debts and investments of financial institutions. In addition, the Treasury could seek help from the Federal Reserve and the Federal Deposit Insurance Corp. to provide banks with guarantees against losses on assets backed by residential and commercial real estate loans.

On Tuesday, Sen. Charles Schumer, D-N.Y., a member of the Senate Banking Committee with close ties to Wall Street, warned against the "bad bank" idea saying it could be too expensive and the government would have a difficult time setting a value on the assets. He instead endorsed guaranteeing bad assets at a value lower than what banks have on the books.

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  • by VBush Location: MHCY on Feb 4, 2009 at 08:25 PM
    Ryan; First of all, I think Savage IS a 'wing nut'. He does a lot of pointless ranting and yelling, to the point he almost sounds like he is speaking in tongues. I haven't listened to him in years, but I am sure he hasn't changed his game. Hannity, while making good points is a 'bucket carrier' for the Republican party. Even when they do something wrong, he pulls the typical liberal move and circles the wagons, defending them to the end. I don't like that. Ed Schultz, I have attempted to listen to, however he always complains like all liberals, but never have I heard him offer a suggestion as to how better handle a situation. (like all liberals). Because of this fact, I have never been able to make it all the way through one of his shows. All he and his callers do is complain. No answers, just typical standard liberal rhetoric. I cannot imagine this man ever being a conservative. He may have been a RINO, but he couldn't have been a logical thinker and degenerated to what he is today.
  • by Cactus Location: Strabane on Feb 4, 2009 at 04:22 PM
    Mr.Obama, do you intend to put some type of caps on the auto unions, or just give them free reins. I Know "free reins" as pay back for your support during the elections.
  • by Ryan Location: Winterville on Feb 4, 2009 at 01:50 PM
    VBush: Thank you for a well-reasoned post. What you suggest makes sense. For the record, I do consider many view points and arrive at my own conclusions. So, I listen to Rush/Sean/Laura/and Michael Savage more than occassionally on radio. Also, watch Bill O. periodically. Honestly, I disagree with 75% of what they say. But, I do consider their viewpoints, just differ on much philosophically. In turn, let me counter your Tammy Bruce recommendation with Ed Schultz, a "reformed" conservative. As far as conservatives go, I am much more aligned with the classic and true conservatives such as George Will, Pat Buchanan, and William F. Buckley. These conservatives, IMO, put country over party first, unlike those that I named above. The neo-con chicken-hawks named above have besmirched the honorable name of conservatism. I trust that you understand where George Will, Pat B., and Buckely stood on Bush and Iraq, right? Again, they are the standard bearers; despite the hot air of Rush/Sean, et.al.
  • by Barlow Location: Winterville on Feb 4, 2009 at 01:36 PM
    People who think Rush is credible are the same people who think professional wrestling is real. Its just entertainment! (and not good entertainment at that). Don't take it seriously. Change the radio station and watch something besides FAUX once in a while. You can get the truth by looking at multiple sources of news. You'll be surprised how MANY (like everything else out there) other news sources have facts contrary to the brattle you hear with Rush and Fox News. Check it out, you owe it to yourself
  • by VBush Location: MHCY on Feb 4, 2009 at 12:27 PM
    Ryan, We 'Rush loving wing nuts' as you put it, ABSOLUTELY DO UNDERSTAND. Quite possibly you should give him and a few others a listen for more than 5 minutes. You might actually learn something. Most conservative talk radio hosts actually research their opinions and base them on facts, not feeling. Most logical thinking conservatives will actually change their opinion when FACTS prove them incorrect. Liberals on the other hand rarely do so. When presented with facts that go against their feelings, they simply discount it as right wing propaganda and continue rambling on how they perceive the issue. If you have never listened to Tammy Bruce, she is a prime example of a reformed liberal who used her brain for something other than a hat rack and to keep her ears apart. She is quite extensive, as she was heavily involved in some extremely liberal organizations. Now she is pretty conservative save for a couple of personal issues which she is very open about.
  • by Ryan Location: Winterville on Feb 4, 2009 at 11:48 AM
    Barlow, my fellow Wintervillian, you are sounding reasonable. The Rush loving wing-nuts pervasive to this board are hard-wired to not understand. But, I commend you for the attempt.
  • by Dave Location: Wake County on Feb 4, 2009 at 11:27 AM
    At a time when the the only criteria for hiring a bank executive is that they have to be greedy and incompetent a pay cap isn't going to hurt any of them. They should have some money left over from the millions they stole from us last year.
  • by Dwayne Location: Greenville on Feb 4, 2009 at 07:00 AM
    Obama is going to issue the statement to taxpayers with Timothy Geithner? Tim is the one who purposefully bilked taxpayers for four years and now he is overseeing the Treasury. That speaks volumes of Obama's ability to make even the least of common sense decisions. The Roman Empire was never defeated. It fell thru internal corruption. Obama is taking us down that path. You'll be able to visit Europe soon without leaving our borders.
  • by Anonymous on Feb 4, 2009 at 06:13 AM
    I should hope that 500,000 could be a high enough salary but who knows. Now, they might decide to steal what ever amount they think they are owed, it will only get worse in the large corporations. Soon, it will get to small bussines and tell everyone they must get paid the same salary all across the country. It is going to be pretty scarey. The future will get worse, but hopefully not for a while.
  • by Barlow Location: Winterville on Feb 4, 2009 at 05:27 AM
    History lesson for those using the words "Marxist" or "Marxism". Marx's system of government was developed as a reaction to two major world events/developments. 1) The industrial revolution in England where children were being worked to death in factories and 2)slavery in the US. I don't condone the doctrine and would not want to live in a Marxist state, but you need to understand why this came about. Marx saw his system as superior and one that would eliminate the wrongs of child labor and slavery. Because both of these evils have been mostly eliminated worldwide, Marxism has not, and should not, survive as a doctrine on which govt is based. Don't worry we are not even close to a Marxist state.
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