Lawmakers' Goal to Cap Executive Pay Meets Resistance
Thursday, February 12, 2009
Congressional efforts to impose stringent restrictions on executive compensation appeared to be evaporating yesterday as House and Senate negotiators worked to fine-tune the compromise stimulus bill.
Provisions to impose a penalty on banks that paid hefty bonuses and to cap pay at $400,000 for all employees at firms applying for additional government funds did not survive the compromise, sources said.
The situation was in flux last night, but provisions in the Senate bill that called for a ban on bonuses for all companies receiving government funds also appeared to be headed to the chopping block, congressional sources said.
The provisions would go further than those announced by the Obama administration last week. They would target the 359 banks that have received government aid and essentially prohibit companies from paying anything other than a base salary, analysts said. The 25 highest-paid executives at each company would be subject to the ban.
The White House restrictions, which capped executive pay at $500,000, apply only to institutions that receive government funds in the future and under limited circumstances. The White House version also allows companies to award company stock to executives that could be redeemed once the government investment was repaid.
Excessive executive compensation has received increasing scrutiny as the pay gap between executives and average workers widened in recent years. Public outrage has reached a boiling point with news that billions of dollars in bonuses were paid to Wall Street employees last year even as the banks took billions in taxpayer bailout money.
The provisions in the Senate bill were part of a flurry of efforts by legislators to curb executive pay. While similar proposals remain in Congress, their elimination from the stimulus package highlights the difficulty of passing such measures.
Several compensation analysts said yesterday that many of the measures that were in the Senate bill would have faced legal hurdles because they applied retroactively to banks that received government funds under rules agreed to last fall when Congress passed the Troubled Assets Relief Program's capital repurchase plan.
"It was not part of the original agreement," said Laura Thatcher, head of the executive compensation practice at Alston & Bird. "If they're going to retroactively change playing rules, it would seem to me that, in fairness, they would have to give the institutions an opportunity to back out of the deal altogether."