Late fix in stimulus bill imposes tighter limits on bank pay
The economic stimulus bill passed by the Senate on Friday includes curbs on executive pay that go well beyond what Wall Street had been expecting.
Sen. Christopher Dodd (D-Conn.), the chairman of the Senate Banking Committee, slipped the provisions into the bill late in the process. The entire stimulus package now heads to President Obama for his signature.
From the Washington Post:
The bill limits bonuses for executives at all financial institutions receiving government funds to no more than a third of their annual compensation. The bonuses must be paid in company stock that can be redeemed only when the government investment has been repaid.
Unlike compensation rules the White House had previously issued for executives of companies getting additional government capital, Dodd made his measure retroactive, the Post said:
The limits in the stimulus bill would apply to top executives and the highest-paid employees at all 359 banks that have already received government aid.
"This is a big deal. This is a problem," said Scott Talbott, chief lobbyist for the nation's largest financial services firms. "It undermines the current incentive structure."
Talbott said banking executives expected certain restrictions would be applied to them but are concerned that some of the most highly paid employees, such as top traders, who bring in hefty sums for the company, would flee to hedge funds or foreign banks that have not accepted U.S. government funds.
Dodd’s move could backfire if it fuels another exodus of investors from battered bank stocks, which could weaken the institutions and force some to appeal for new government help.
The KBW index of 24 major bank shares plunged 14% this week to close at 26.11 on Friday, just above the 14-year low of 25.34 reached on Jan. 20. The index has dived 41% this year.
In a statement, Dodd said he was "delighted that my amendment to impose tough new limits on huge bonuses for executives working in firms that receive taxpayer funds will be included in the final economic recovery bill.
"The decisions of certain Wall Street executives to enrich themselves at the expense of taxpayers have seriously undermined public confidence in efforts to stabilize the economy. American taxpayers deserve better. With vigorous oversight by the Treasury Department and by Congress, these tough new rules will help ensure that taxpayer dollars no longer effectively subsidize lavish Wall Street bonuses.”
-- Tom Petruno
Photo: Sen. Chris Dodd. Credit: Matthew Cavanaugh / EPA