Washington: The US Congress on Friday voted to restrict bonuses and other forms of pay for top managers at banks and companies getting taxpayer help under the government’s $700 billion financial industry bailout.
The pay curbs were approved as an amendment to a separate $787 billion economic stimulus package approved by both the Senate and the House of Representatives. It will go next to President Barack Obama, who is expected to sign it into law.
The pay curbs would affect companies being assisted under the Treasury Department’s Troubled Asset Relief Program (TARP).
The TARP was launched in October by the George Bush administration as an effort to stabilize the financial system.
The curbs were drawn up by Sen. Christopher Dodd, chairman of the Senate Banking Committee. They would ban compensation incentives that encourage senior managers “to take unnecessary and excessive risks that threaten the value” of a company.
“Golden parachute” severance packages for top executives at TARP beneficiaries would be prohibited. So would pay plans that “encourage manipulation of the company’s reported earnings.”
Bonuses would be limited for senior executives and the top 20 employees at firms getting more than $500 million from TARP; senior executives and the top 10 employees at firms getting $250 million to $500 million; and smaller groups of managers at firms getting less than $250 million in graduated increments.
“The decisions of certain Wall Street executives to enrich themselves at the expense of taxpayers have seriously undermined public confidence in efforts to stabilize the economy,” Dodd, a Connecticut Democrat, said in a statement. “These tough new rules will help ensure that taxpayer dollars no longer effectively subsidize lavish Wall Street bonuses.”
Shortly after the TARP began, questions arose about what was happening to the money being injected into banks by the Treasury Department through preferred share purchases.
Reports surfaced of large executive bonuses, expensive travel and buyouts of other banks, with few signs evident that TARP recipients were lending out the money in order to get stalled credit markets moving again and revive the economy.
The Treasury has committed more than $500 billion under the TARP to assist many firms, including the banks Citigroup Inc, Bank of America Corp, Bank of New York Mellon Corp, and Goldman Sachs Group Inc.
Insurer American International Group Inc and automakers General Motors Corp and Chrysler LLC have gotten TARP aid. So have banks JPMorgan Chase, Wells Fargo, Morgan Stanley and many others.
At a House Financial Services Committee hearing on Wednesday, the chief executives of eight large banks defended their use of TARP funds, although some lawmakers remained skeptical about the beneficial impact of the program.
Under Dodd’s amendment, Treasury could “claw back” past pay and bonuses from top managers at TARP firms if the compensation was awarded wrongfully or based on inaccurate criteria.
In addition, “say on pay” rules would be imposed on TARP firms to give shareholders more influence on pay decisions.
“The restrictions will limit the ability of financial institutions to attract and retain employees who work on commission,” said Scott Talbott, spokesman for the Financial Services Roundtable, a lobbying group for financial firms.
He said the curbs will make firms less competitive, but he added that financial firms “will comply with the new law.”
President Barack Obama last week set a $500,000 cap on executive pay and imposed other restrictions on companies that receive TARP money. Obama’s rules were not retroactive. Dodd’s provision would affect all TARP recipients, past and future.