A Policeman for Executive Pay « The Washington Independent
The Obama administration is poised to tap Kenneth Feinberg, the mediation guru who headed the 9/11 victim compensation fund, to monitor the nation’s bailed-out firms for compliance with executive compensation limits, The Wall Street Journal reported today. First, though, the White House has to sift through the tangle of executive pay restrictions imposed by Congress and the Treasury to determine what exactly those limits are going to be.
The Obama administration earlier this year issued guidelines that include limiting salary for top executives at some firms receiving TARP funds and requiring that additional pay be in the form of restricted stock, vesting only after the company repays its debt, with interest, to the government. Congress then chimed in with even tougher rules curbing bonuses for top earners at firms receiving TARP money. As part of that effort, lawmakers barred those firms from paying top earners bonuses that equal more than a third of their total compensation.
“The White House,” the Journal reported, “has been wrestling with how to marry those two efforts, which in combination are more punitive than administration officials had intended.”
Indeed, “more punitive” is hardly what policymakers seem to be after. A brief history:
Both the Bush and Obama administrations have been extremely lenient about limiting executive compensation for firms accepting bailout cash. The original bailout bill, unveiled by then-Treasury Secretary Henry Paulson in September, contained almost no conditions on executive pay at all. Congress intervened to apply some limits, but the loopholes remained enormous.
In January, the House passed a bill to close some of those loopholes, but the Senate ignored the bill.
A month later Obama, along with his Treasury Secretary Tim Geithner, announced their own executive pay limits, though those guidelines also were pocked with holes. The reason for the leniency, a Treasury release argued at the time, was “to strike the correct balance between the need for strict monitoring and accountability on executive pay and the need for financial institutions to fully function and attract the talent pool that will maximize the chances of financial recovery.” The message was clear: The White House feared that severe restrictions on executive pay, even for firms kept afloat only on the waterwings of billions of federal dollars, would scare away the “talent pool” that had run the companies into the ground — employees deemed vital to the recovery.
More recently, the Senate succeeded in passing another law limiting some executive bonuses to a third of compensation. It’s this law that the administration apparently feels is too punitive, despite the fact that Treausry officials watered it down before it was passed. And of course none of these efforts have done much to limit executive pay, as reports have indicated.
So this is the landscape that Feinberg is soon to encounter. Think about that the next time you’re feeling bitter about your job.