by Mark Silva
The White House, having admittedly "screwed up'' in the vetting of a few executives to run the government, is attempting to clean up another situation which the president has called "shameful'' -- turning today to restrictions on pay for executives of private firms collecting federal bailout money.
President Barack Obama this morning will join Treasury Secretary Tim Geithner - who encountered $34,000 of tax problems in his own vetting for his Cabinet post - in announcing new rules for companies collecting federal support.
The White House has an opportunity to quickly turn the spotlight from the wrong message that it was sending - as Obama put it: A message that there are two sets of rules, one for "the powerful'' in Washington, and one for the ordinary taxpayer - to a message that the public may like much better: Wall Street will have to trim its sails if it wants federal help.
There are some strings attached to the new rules:
They are aimed at ensuring that "that financial institutions receiving government funds are held accountable for spending that money responsibly,'' an administration official says, calling them "part of a comprehensive plan to stabilize and strengthen our financial system, and get credit flowing again.''
Under these rules, companies that have already collected money from the Treasury Department under the $700-billion bailout begun under former President Bush will have to show that they have complied with a current set of restrictions and reforms on executive pay and lending requirements "and agree to strict monitoring and oversight going forward.''
From now on, companies receiving "exceptional assistance" from the Treasury will face new rules:
-- No top executives will be paid more than $500,000 a year.
-- Any additional compensation must be paid in restricted stock options that do not vest "until taxpayers have been paid back.''
-- Restrictions on golden parachutes.
-- "Say on pay" shareholder policies "to give a voice to average investors about salary structures for top executives.''
-- Tougher "transparency rules,'' including on expenses such as aviation services, office renovations, entertainment and holiday parties, conferences and events.
"The standards today mark the beginning of a long-term effort to institute a sensible framework for executive compensation that promotes sound risk management and long-term growth while preventing such financial crises from happening again,'' the administration official says.
The current program forbids recipients of government funds from taking a tax deduction for senior executive compensation above $500,000. The new rule takes this further by limiting the total amount of compensation to no more than $500,000 for these senior executives, except for restricted stock awards.
Under the new rules, senior executives be able to cash in restricted stock only after the government has been repaid or after "a specified period according to conditions that consider, among other factors, the degree to which a company has satisfied its repayment obligations as well as lending and stability goals.''
Under Treasury's "Generally Available Capital Access Programs,'' including those infusing capital into healthy, viable institutions to increase the flow of financing available to small businesses and consumers, senior executive pay will be limited to $500,000 plus restricted stock - unless the cap is waived, under "full public disclosure,'' by a vote of stockholders.
Treasury's "investments'' in these programs have totaled $195.33 billion so far, with money going to 359 institutions in 45 states and Puerto Rico. To date, the largest investment was $25 billion, the smallest about $1 million.
Treasury charges interest for this money, five percent for five years and nine percent after that. And Treasury says some have already started paying "dividends.''
Comments
Is "encountered tax problems" the new DNC Swamp euphemism for Democrats who cheat on their taxes? Sorta like Jesse James "encountered bank withdrawal problems", or Bill Clinton "encountered fidelity problems"?
I expect Swamp writers to use this euphemism the countless times a Democrat will be caught cheating on his or her taxes.
Posted by: "Dissent is Patriotic" | February 4, 2009 11:40 AM
I have to say this is a good move. I never understood the "retention bonuses" Wall Street executives were getting this year after accepting bailout funds. Why would they need to get a bonus to stay in their current jobs? What big banking or insurance company could possibly by HIRING new executives right now? The retention bonus was simply these companies' way of saying "good job getting us that tax payer cash, here's your taste."
Of course if these companies pay back our taxpayer money (not holding my breath) they and their executives should be allowed to spend their profits any way they see fit.
Posted by: Jeff | February 4, 2009 12:06 PM
The taxpayer public is now the owner of these poorly run banks staffed by incompetent employees. If they do not like the conditions imposed by representatives of their owners, they are free to quit their jobs and try to get a job somewhere else, if there is a market for executives who run businesses into the ground.
Just like these executives like to tell their subordinates, if you don't like the conditions, you can quit.
This is a good start, but I would prefer an elimination of "golden parachutes" entirely. If these people invested their own money as badly as they did the banks they worked for, that's their problem. While the rest of us invest in 401k's and whatnot, these people, who had the money to invest, get handouts from companies. Ridiculous.
Posted by: Jim | February 4, 2009 12:19 PM
Read betweent the lines people.
By adding the clause "or after "a specified period according to conditions that consider, among other factors, the degree to which a company has satisfied its repayment obligations as well as lending and stability goals.'', it gives the Obama administration the ability to allow any company to qualify and let their executives start selling the stock prior to the citizens being paid back. Why does there always have to be a loophole?
Additionally, by allowing the $500,000 cap to be waived through a stockholder vote, there is another major loophole. Guess who owns a lot of the stock in these institutions? That's right, the very executives whose pay will be impacted. Their votes could easily outnumber the common shareholder so they can essentially vote in their own pay raise. How is this any different than it is today?
Posted by: matt | February 4, 2009 12:47 PM
Couldn't agree more with Jim and Obama.
If you stick your hand out and feed from the public trough, then you get a rationed amount. If you don't like it, then find somewhere else to get your funds - it's that simple..
CEOs of all companies....including Media outlets, lobbying groups, and political insiders are fighting a BS public relations campaign. They claim that the "talent" will leave. Leave to where? What talent? If they were so talented, then why can't they turn it around?
Let them go and fight it out for better paying jobs like the rest of us. Go ahead and leave and go to Europe - you like 40-50% income taxes? Bye!
This is part of the "sacrifice" that Obama ran on, and it's time to bring it home. It's sickening how entitled these crybabies feel. If you are using taxpayer/bailout money - you now work for me, and the millions of other hard-working Americans that lent you money - now back to work or out the door - either way I don't care. There's 20-30 of you waiting outside our door for your spot.
Posted by: karl | February 4, 2009 1:32 PM
I would like to know why in the world our government would not seriously consider the "FAIR TAX". Every working man and woman would take home every dollar they earned. This would enable them in most cases pay for their mortgage, send their children to the schools of their choice, pay for health insurance. With taxes the government would collect on any purchases, they would certainly make more revenue and everyone would be taxed equally. And then we would not need any bailout. Because the government got us into this mess and I have my doubts that they will get us out, of this mess. They haven't a clue where the original bailout money wound up.
Posted by: Paul | February 4, 2009 1:50 PM
Capping executive pay at $500,000 a year for financial firms receiving "exceptional assistance" is a little late in coming and does nothing for us now. That horse is already out of the barn. Even if it does come back, I'm sure there are enough legal loopholes and "exceptions" lurking in that guideline to make it of little consequence. Obama did nothing, again.
Obama needs to get his nose out of the air and to the grindstone where it belongs. He ran around the country, hat in hand, begging for the job of President -- it's time he produces something of value in exchange for his salary.
Posted by: John Awner | February 4, 2009 2:27 PM
The Nominee Who Lobbied Herself
Hilda Solis's breach of House ethics rules may disqualify her from serving.
by Hans A. von Spakovsky
http://www.weeklystandard.com/Utilities/printer_preview.asp?idArticle=16101&R=1605C24E46
Posted by: This appointment doesn't pass the smell test. | February 4, 2009 3:27 PM
While I believe less is more when it comes to government intervention, on this issue I wholeheartedly agree that income and perks should be limited for those who participate in the bailout until the money has been repaid. A good start but It's time to do more. How about the stocks and other options that could easily add up to millions of dollars?
Posted by: Suggestions4Obama.com | February 4, 2009 3:51 PM