TOPICS > Economy

Obama Links $500,000 Executive Pay Cap to Bailout Funds

BY Admin  February 4, 2009 at 12:00 PM EST

President Barack Obama and Timothy Geithner; AP

Mr. Obama announced the dramatic new government intervention into corporate America at a White House press conference, with Treasury Secretary Timothy Geithner at his side.

“This is America. We don’t disparage wealth. We don’t begrudge anybody for achieving success,” Mr. Obama said. “But what gets people upset — and rightfully so — are executives being rewarded for failure. Especially when those rewards are subsidized by U.S. taxpayers.”

The move follows guidelines laid out in a letter Lawrence Summers, director of Mr. Obama’s National Economic Council, wrote to Congress last month.

“Executive compensation above a specified threshold amount be paid in restricted stock or similar form that cannot be liquidated or sold until the government has been repaid,” he suggested.

The measure would also give shareholders a non-binding vote on executive compensation. Financial institutions participating in the bank bailout package will face more stringent transparency rules on expenses such as aviation services, holiday parties and office renovations, the Wall Street Journal reported.

Recent reports that banks receiving TARP funds paid out billions of dollars in bonuses caused a public uproar and led to a sharp rebuke from President Obama who called Wall Street’s behavior “shameful.”

The mandate would not affect executive compensation at companies that have already received Treasury Department funds.

Thus far, the $700 billion rescue program has been used to shore up “healthy” banks rather than those on the brink of collapse, but recent economic numbers suggest that more companies will be turning to the government as the recession deepens.

The Times reports that the executives of five of the biggest companies to get help – Citigroup, Bank of America and the American International Group, General Motors and Chrysler – made far more than $500,000 last year.

Kenneth Lewis of Bank of America made more than $20 million in 2007, Vikram Pandit of Citigroup made $3.1 million and Richard Wagoner of General Motors made $14.4 – a $1.6 million salary with stock, options and other non-cash benefits.

There was no public reaction from top executives, but James Reda, founder of compensation consulting firm, said such limits will make it hard for the companies to recruit and keep executives, because they could earn more money at other firms.

“That is pretty draconian – $500,000 is not a lot of money, particularly if there is no bonus,” he told the Times.

Mr. Obama has said that now is not the time to be earning big bonuses. “If the taxpayers are helping you, you’ve got responsibilities not to live high on the hog,” Obama told CNN on Tuesday evening.