UPDATE:Treasury Announces New Pay Limits On TARP Recipients
10 Juni 2009 - 11:39PM
Dow Jones News
The U.S. Treasury Department late Wednesday announced new limits
on pay for certain executives at companies that have received aid
from the government's $700 billion financial-rescue fund.
The rules, which largely implement restrictions Congress passed
earlier this year, limit bonus payments in an effort to protect
taxpayer investments and curtail the payment of "golden
parachutes."
Specifically, the rules limit bonuses paid to senior executive
officers and other highly paid employees of rescued firms to
one-third of total compensation.
Additionally, the rules encourage firms to pay salaries in the
form of stock that must be held for a long period of time.
"As long as there is an obligation back to the government, the
rules stay in place," a senior Treasury Department official told
reporters on a conference call Wednesday.
As widely reported, the administration also announced plans to
appoint Kenneth Feinberg to serve as a new "special master" to
review compensation at companies receiving significant assistance
under the Troubled Asset Relief Program, or TARP.
Feinberg, who oversaw the government's efforts to compensate
Sept. 11 victims, will be able to reject what are deemed to be
excessive or inappropriate salaries at companies receiving
exceptional government aid.
Those seven firms receiving "exceptional assistance" from the
government include: American International Group Inc. (AIG),
Citigroup Inc. (C), Bank of America Corp. (BAC), General Motors
Corp. (GMGMQ)., GMAC LLC, Chrysler and Chrysler Financial.
Treasury's rule also calls on the board of directors of each
TARP recipient to put in place policies on luxury or excessive
expenditures.
Meanwhile, the Obama administration Wednesday also unveiled
plans to work with Congress on legislation that would give
shareholders more say on companies' pay practices, all part of a
plan to get compensation practices to better mesh with the
interests of shareholders and the long-term health of
companies.
Seeking to also boost oversight and transparency of firms' pay
practices, the administration also wants Congress to pass measures
that would help make corporate compensation committees much more
independent.
It's time for companies' compensation practices to stand more
closely aligned with sound risk-management and long-term growth,
Treasury Secretary Timothy Geithner told reporters after holding a
meeting at Treasury with Securities and Exchange Commission
Chairwoman Mary Schapiro, Federal Reserve Governor Dan Tarullo and
several compensation experts.
"This financial crisis had many significant causes, but
executive compensation practices were a contributing factor,"
Geithner said in a statement Wednesday. Federal officials have
argued that compensation practices incentivized excessive
risk-taking, which ended up hurting firms as well as shareholders
and the broader economy leading up to the financial crisis.
To encourage improvements, Geithner said the administration will
be working with Congress to pass so-called "say on pay"
legislation. That legislation would give the SEC authority to
require companies to give shareholders a non-binding vote on
executive compensation packages. He added the administration will
save for later an announcement on new compensation rules for firms
that have received government bailout money.
-By Maya Jackson Randall, Dow Jones Newswires; 202-862-9255,
maya.jackson-randall@dowjones.com