2nd UPDATE: Treasury Announces New Pay Limits On TARP Firms
11 Juni 2009 - 12:05AM
Dow Jones News
The U.S. Treasury Department late Wednesday announced new
compensation limits for 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. The number of employees affected
will depend on how much aid a firm has received. For firms
receiving more than $500 million in assistance, for instance, the
bonus limits will apply to the five senior executives as well as
the 20 highest-paid workers.
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.
The rules announced Wednesday largely implement measures
authored by Senate Banking Committee Chairman Chris Dodd,
D-Conn.
"Executive compensation has spiraled completely out of control -
instead of rewarding long-term success it has rewarded short-term
gains and encouraged excessive risk-taking," Dodd said in a
statement Wednesday. "What's particularly offensive is that many
companies who are relying on taxpayer dollars for survival are
simultaneously rewarding those who drove their firms and our
economy into the ditch."
In addition to implementing Dodd's amendment, Treasury plans to
also 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.
-By Maya Jackson Randall, Dow Jones Newswires; 202-862-9255,
maya.jackson-randall@dowjones.com