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Obama to impose salary cap on executives at bailed-out firms

By Edmund L. Andrews and Vikas Bajaj
New York Times / February 4, 2009
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WASHINGTON - The Obama administration is expected to impose a cap of $500,000 for top executives at companies that receive large amounts of bailout money, according to people familiar with the plan.

Under new rules to be announced by the Treasury Department as early as today, executives would also be prohibited from receiving any bonuses above their base pay, except for normal stock dividends.

The new rules would be far tougher than any restrictions imposed during the Bush administration, and they could force executives in the months ahead to accept deep reductions in their current pay. The cap was proposed amid rising public fury about huge pay packages for executives at financial companies being propped up by federal tax dollars.

Executives at companies that have already received money from the Treasury Department would not have to make any changes. 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 been to the trough may well be coming back.

Crucial details remained unclear last night, including whether the restrictions would apply to all companies that receive money under the so-called Troubled Asset Relief Program, or TARP, or whether they would apply only to the "exceptional" companies that were being rescued from collapse.

Under the Treasury's $700 billion rescue program, most companies that have received money so far have been considered healthy rather than on the brink of collapse.

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

According to Equilar, an executive compensation research firm, Kenneth D. Lewis, the chief executive of Bank of America, made more than $20 million in 2007. Of that, $5.75 million was in salary and bonuses. Vikram S. Pandit, who became chief executive of Citigroup in December 2007 and previously held other senior positions at the bank, made $3.1 million. Richard Wagoner, the chief executive of General Motors, made $14.4 million, much of it in stock, options, and other noncash benefits. He received a $1.6 million salary.

"That is pretty draconian; $500,000 is not a lot of money, particularly if there is no bonus," said James F. 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 that only a handful of big companies pay chief executives and other senior executives $500,000 or less in total compensation.

"It would be really tough to get people to staff" companies that are forced to impose these limits, he said. "I don't think this will work."

President Obama last week 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 some of the nation's most prominent financial institutions.

Obama's new rules are coming just as he is expected to ask for additional sums of money, beyond the $700 billion already authorized, to prop up the financial system.

The banks that have received bailout funds already are subject to limits on compensation, but they are not considered strict.

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