Plan: Cap of $500,000 on executive pay

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Registered: 03-18-2000
Plan: Cap of $500,000 on executive pay
2
Wed, 02-04-2009 - 11:13am
For large bailout recipients, a plan to curb executive pay

 




WASHINGTON: The administration of President Barack Obama will impose a cap of $500,000 on the annual pay of top executives at companies that receive large future infusions of bailout money, people familiar with the plan said in advance of a formal announcement Wednesday.


The plan is far tougher than any restrictions imposed during the administration of President George W. Bush and could force executives to accept deep reductions in pay. Public fury has been rising over huge pay packages for executives at companies that are propped up by federal tax money. (Me: IMO that's one of the reasons the stimulus package is unpopular. That & AIG's w'end of extravagance & so forth.)


Executives at companies that have already received money from the Treasury Department will not have to make any changes under the plan. But analysts and administration officials are bracing for a huge wave of new losses, largely because of the deepening recession, and many companies that have already received federal money may well come back for more.


It was not immediately clear if the Obama plan would affect all companies that receive future bailout money or only ones on the brink of collapse. Under the Treasury's $700 billion Troubled Asset Relief Program, most companies were considered "healthy" when they were bailed out.


Under the Obama plan, executives would be prohibited from receiving any bonuses above their $500,000 maximum base pay, except for normal stock dividends.


"That is pretty draconian - $500,000 is not a lot of money, particularly if there is no bonus," said James Reda, founder and managing director of James F. Reda & Associates, a compensation consulting firm. "And you know these companies that are in trouble are not going to pay much of an annual dividend."


Reda said only a handful of big companies pay chief executives and other senior executives $500,000 or less in total compensation. He said such limits would make it hard for the companies to recruit and keep executives, most of whom could earn more money elsewhere.


"I don't think this will work," he said.


Five of the biggest companies to get help so far - Citigroup, Bank of America, American International Group, General Motors and Chrysler - were facing acute problems when bailed out. And top executives at those companies made far more than $500,000 in recent years.


Kenneth Lewis took home more than $20 million in 2007 as chief executive of Bank of America. Of that, $5.75 million was in salary and bonuses.


Vikram Pandit, who became chief executive of Citigroup in December 2007 and had previously held other senior positions at the bank, made $3.1 million.


Richard Wagoner, chief executive of General Motors, made $14.4 million, much of it in stock, options and other non-cash benefits. He earned a $1.6 million salary.


Obama is expected to ask for additional money, beyond the $700 billion already authorized, to prop up the financial system and is pushing Congress to move quickly on a separate economic stimulus package that could cost as much as $900 billion.


Last week, Obama branded Wall Street bankers "shameful" for giving themselves nearly $20 billion in bonuses as the economy was deteriorating and the government was spending billions to bail out U.S. financial institutions.


"If the taxpayers are helping you, then you have certain responsibilities to not be living high on the hog," Obama said this week in an interview with NBC News.


The banks that have received bailout funds are already subject to limits on compensation, but the Bush administration left them lax. The top five executives at banks that got an equity infusion from the government are restricted from offering rich severance packages, and the company must pay taxes on any compensation above $500,000.


Companies that received emergency money, like Citigroup, faced somewhat tougher restrictions, including a requirement to reduce the bonus pool for the top 50 executives by 40 percent. But even those restrictions come nowhere near a $500,000 cap.


In a letter to Congress last month, Lawrence Summers, director of the National Economic Council, discussed pay restrictions without mentioning a particular dollar limit. Summers suggested that "executive compensation above a specified threshold amount be paid in restricted stock or similar form that cannot be liquidated or sold until the government has been repaid."


Last week, Senator Claire McCaskill, Democrat of Missouri, proposed a $400,000 limit on annual pay for executives at bailed-out companies. Reacting to reports of extravagant perquisites and bonuses at companies like Merrill Lynch and Citigroup, she blasted Wall Street executives as "a bunch of idiots" who were "kicking sand in the face of the American taxpayer."

Photobucket  The WeatherPixie 

 


Photobucket&nbs

iVillage Member
Registered: 03-18-2000
Wed, 02-04-2009 - 11:22am

Wall Street becomes the target of scorn


 


Photobucket&nbs

iVillage Member
Registered: 03-23-2003
Wed, 02-04-2009 - 12:36pm

"That is pretty draconian - $500,000 is not a lot of money, particularly if there is no bonus," said James Reda, founder and managing director of James F. Reda & Associates, a compensation consulting firm. "And you know these companies that are in trouble are not going to pay much of an annual dividend."


Draconian???