08 June 2009

Exec Compensation Review For Bailed Out Companies

The Obama administration plans to require banks and corporations that have received two rounds of federal bailouts to submit any major executive pay changes for approval by a new federal official who will monitor compensation, according to two government officials.

The proposal is part of a broad set of regulations on executive compensation expected to be announced by the administration as early as this week. Some of the rules are required by legislation enacted in the wake of the worst financial crisis since the Great Depression, and they would apply only to companies that received taxpayer money.

Others, which are being described as broad principles, would set standards that the government would like the entire financial industry to observe as banks and other companies compensate their highest-paid executives, though it is not clear how stringent regulators will make them.

Citigroup, Bank of America, the American International Group, General Motors and its finance arm, GMAC, which all received two taxpayer infusions, will face the strictest scrutiny. . . .

In the past, banks had free rein to determine the base salary and bonuses they awarded their employees. When the economy was riding high, bonuses for top Wall Street executives and traders soared to tens of millions of dollars. Critics say the bonuses often encouraged excessive risk-taking since star bankers could walk away with more money even if the bets they took failed to pay off. . . .

With the government handing out billions in bailouts, Congress passed legislation banning all companies that received support from the Troubled Asset Relief Program, or TARP, from paying their top 25 executives bonuses greater than a third of their salary, though they were not subject to specific salary cap.

The banking industry had been lobbying the Obama administration to exclude traders and other highflying salespeople from the top 25, fearing it would lose top talent to competitors not constrained by the rules of a taxpayer bailout. A number of bankers at Citigroup and Merrill Lynch have already fled to higher-paying jobs with rivals. But officials say that the guidelines will apply to the top 25 earners, including the traders.

From here.

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