Washington: US President Barack Obama kicks off a campaign to rein in corporate compensation on Wednesday with rules limiting executive pay to $500,000 a year for companies getting taxpayer bailout funds in the future.
Obama, who sharply criticized Wall Street chiefs for accepting billions of dollars in bonuses last year while the economy fizzled, had promised compensation reform as part of a package of stricter regulations on the financial industry.
The restrictions were a first step in a broad effort to overhaul compensation practices and are likely to be popular with average Americans, potentially diverting attention from Tuesday’s high profile withdrawal of former Senator Tom Daschle’s nomination to lead Obama’s healthcare reform initiatives.
An Obama administration official said the new rules would require companies that get exceptional government funds - such as financial giant Citigroup and insurer AIG have in the past - to abide by the cap.
Additional compensation must be limited to restricted stock that does not vest until government money is paid back with interest.
Companies that have previously received bailout money would have to agree to stricter oversight and prove that they have followed already established restrictions on executive compensation, which are widely seen as being too lax.
The White House aims to hold banking executives accountable for the money they receive from government coffers with the new rules, which were presented as being in the interest of shareholders and taxpayers alike.
“This is a reasonable approach,” Obama said when describing the restrictions in an interview with CNN on Tuesday.
“It’s not a government takeover. Private enterprise will still be taking place, but people will be accountable and responsible and that’s what we have to restore in the financial system in general.”
Obama’s measures come after his own outrage and public outcry over $18.4 billion in bonuses paid out in 2008 at a time when taxpayer money was shoring up the financial system.
Obama and Treasury Secretary Timothy Geithner were scheduled to discuss details during an announcement at the White House at 11am (1600 GMT).
Long term restrictions on banks
The rules will require banks to give shareholders greater say over the money paid to company chiefs, according to information provided by the administration official.
They will also put restrictions on golden parachutes - the lavish severance packages common for senior executives - and require more transparency for costs such as aviation services, big parties, office renovations and conferences.
Healthier financial institutions that receive more generally available government funds will also be subject to the requirements unless shareholders vote to waive them.
Obama, who views excessive compensation as symptomatic of the missteps that led to the financial and economic crises, did not stop with short term goals, however.
His announcement set in motion a long-term process to rein in high salaries on Wall Street, including steps to require all public financial institutions - including those not receiving government funds - to disclose compensation arrangements and prove that they are compatible with sound risk management.
Measures to make corporate executives adopt a long-term approach to their business, such as requiring them to hold stock for several years before it can be cashed in, would also be considered.
To consolidate opinion, Treasury Secretary Geithner will hold a conference with shareholder advocates, investors, executives and other interested parties to discuss executive pay reform at banks and help set guidelines for the future, the official said.