Obama To Set Executive Pay Limits

WASHINGTON (Reuters) – President Barack Obama kicks off a campaign on Wednesday to rein in corporate compensation 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 staggered toward collapse, had promised compensation reform as part of a package of stricter regulations on the financial industry.

The restrictions are a first step in a broad effort to overhaul pay practices and are likely to be popular with average Americans, potentially diverting attention from Tuesday’s shock withdrawal of former Senator Tom Daschle’s nomination to lead Obama’s bid to expand healthcare insurance.

Obama and senior congressional Democrats are also seeking to push through an economic stimulus package of almost $900 billion despite Republican criticism that it focuses too much on government spending and not enough on tax cuts.

An Obama administration official said the new rules would require companies that get exceptional government funds in future 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, according to the new rules.

Companies that have previously received bailout money — such as financial giant Citigroup and insurer AIG — would have to agree to stricter oversight and prove they have followed already established limits on executive compensation, which are widely seen as being too lax.

The White House aims to hold banking executives accountable for the government money they receive, presenting the new rules as being in the interest of shareholders and taxpayers alike.

“It’s not a government takeover,” Obama said when describing the restrictions in an interview with CNN on Tuesday.

“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 move comes amid 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 11:00 a.m. EST.


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, will also set in motion a long-term process to rein in high salaries on Wall Street.

This includes steps to require all public financial institutions — whether they receive government funds or not — 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.

Geithner said in an interview with the Wall Street Journal on Tuesday that U.S. fiscal policy was about to turn “very aggressive” to battle the recession.

By Jeff Mason
(Editing by Mohammad Zargham)