Transcripts

The Treasury Department Punches Holes in Golden Parachutes

PAUL KANGAS: New limits on bonuses and golden parachutes are on the way for companies taking bailout money from Uncle Sam. The Treasury announced the new limits on pay today and tapped mediator Ken Feinberg to review compensation plans at companies getting what it calls exceptional assistance from the government. As Stephanie Dhue reports, the administration also supports proposals to help shareholders rein in pay packages at all public companies.

STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Countrywide's CEO Angelo Mozilo made $600 million while the firm's stock went down 70 percent. Bear Stearns executives were paid on performance metrics, but meeting just one was enough to receive the maximum bonus. To address those types of abuses, Treasury Secretary Geithner wants shareholders to have a say on pay and boards to be more independent, but he's reluctant to do more.

TIMOTHY GEITHNER, TREASURY SECRETARY: We are not proposing an on- going government role in setting policy and compensation. We do not believe its appropriate for the government to set caps on compensation. We are not going to prescribe detailed prescriptive rules for compensation. We think all those things would be ineffective, could be counterproductive in some ways.

DHUE: House Financial Services Committee Chairman Barney Frank supports the administration's approach, but wants to go further. He wants firms that reward risk to also penalize failure.

BARNEY FRANK, CHMN., HOUSE FINANCIAL SERVICES COMMITTEE: If you have a bonus system, if you have an incentive system, it has to be a two way street. You cannot have, as we have in many companies today, rules that say, if you take a risk and the risk pays off for the company, you make money. But if you take a risk and the company loses disastrously, you break even. That's heads I win and tails nothing happens, that incentivizes too much risk.

DHUE: Critics say the proposals will do little to change executive pay. Instead shareholder activist Nell Minow says the markets need to focus on the issue.

NELL MINOW, EDITOR & CO-FOUNDER, THE CORPORATE LIBRARY: There's only so much the government can do. Really, it is time for the market to respond. One thing that has always flabbergasted me is that the ratings agencies don't look at executive compensation as an element of risk. The securities analysts don't look at compensation as an element of risk and I think that will have to change.

DHUE: The spotlight promises to stay on executive pay. With financial firms on the government dole, the Treasury hopes rewriting the rules on executive pay will pay off with better run American companies. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.