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Obama Announces Executive Pay Caps
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Obama Announces Executive Pay Caps

Economy

Obama Announces Executive Pay Caps

Obama Announces Executive Pay Caps
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President Obama announced stricter rules on executive compensation at banks receiving "exceptional" levels of aid from the federal government. Some executives will have their annual salary capped at $500,000. Anything above that would have to be paid in stock that won't vest until the firm has paid back its government loans.

STEVE INSKEEP, host:

It's MORNING EDITION from NPR News. I'm Steve Inskeep in Tehran.

RENEE MONTAGNE, host:

And I'm Renee Montagne in Washington, D.C.

What with all the griping about Wall Street executive pay in Congress, on the editorial pages and among taxpayers, yesterday, President Obama set new limits on pay at financial firms getting government assistance. CEOs at companies getting the most help from the government could see their salaries capped at a half million dollars a year. This comes after President Obama described the huge bonuses and perks on Wall Street as shameful.

President BARACK OBAMA: This is America. We don't disparage wealth. We don't begrudge anybody for achieving success, and we certainly believe that success should be rewarded. But what gets people upset, and rightfully so, are executives being awarded for failure, especially when those rewards are subsidized by U.S. taxpayers, many of whom are having a tough time themselves.

MONTAGNE: The salary caps were unveiled as the government prepares to announce plans for additional help for banks. NPR's Scott Horsley reports.

SCOTT HORSLEY: The federal government has already devoted hundreds of billions of dollars to shoring up the shaky financial sector, and Treasury Secretary Tim Geithner says the bailouts aren't done yet.

Secretary TIM GEITHNER (Department of Treasury): We will have to do more, substantially more, to fix this crisis. Next week, we are going to outline a comprehensive program for financial recovery. This program will be directed at supporting the flows of credit that are essential for our economy to begin growing again.

HORSLEY: But no matter how essential that credit is, devoting more taxpayer dollars to the banking system won't be an easy sell. Neither lawmakers nor the general public feel like they've gotten much in return for the huge sums already spent. Loans haven't gotten any easier to come by, and news that Wall Street paid out $18 billion in bonuses last year only added to the bad feelings.

Pres. OBAMA: In order to restore trust, we've got to make certain that taxpayer funds are not subsidizing excessive compensation packages on Wall Street.

HORSLEY: President Obama joined the chorus of critics last week, calling it shameful that executives would consider spending money on bonuses, office remodeling or corporate jets at a time when their companies are getting multi-billion-dollar bailouts.

If shame alone won't control executive pay, Mr. Obama says new regulations will.

Pres. OBAMA: For top executives to award themselves these kinds of compensation packages in the midst of this economic crisis isn't just bad taste, it's bad strategy, and I will not tolerate it as president. We're going to be demanding some restraint in exchange for federal aid so that when firms seek new federal dollars, we won't find them up to the same old tricks.

HORSLEY: The new rule set the strictest limits on companies getting what the government calls exceptional help. Top executives at those firms will be allowed to earn just $500,000 a year. Anything above that would have to be in the form of restricted stock, which could only be sold after the government's paid back.

But the rules are looser for companies getting somewhat less help from the government. They can waive the half-million-dollar salary cap. And while they might be asked to submit pay packages to shareholders, the vote would be nonbinding. None of the rules is retroactive for banks that have already gotten help.

Economist Robert Miller of Carnegie Mellon University says he's not sure taxpayers will really see much benefit.

Mr. ROBERT MILLER (Economist, Carnegie Mellon University): Well, it certainly does seem to be a kind of political opportunity here to blame greedy managers. But I'm not sure that the more we focus on that, that part of the story, if it's true, the less focused we will be on trying to be think more constructively about how to revive the economy.

HORSLEY: Mr. Obama says the rules announced yesterday are only the first step in examining executive pay. He wants to know if Wall Street's rewards for short-term performance may have encouraged excessive risk taking that contributed to the financial meltdown.

Pres. OBAMA: We're going to be taking a look at broader reform so that executives are compensated for sound risk management and rewarded for growth measured over years, not just days or weeks.

HORSLEY: For Mr. Obama himself, the next few days are a big test. He's laying the groundwork for another round financial rescues, or what he calls the second leg of the economic stool. At the same time, he's still lobbying hard in the face of some skepticism to get the first leg - the massive economic stimulus bill - through the Congress.

Scott Horsley, NPR News, Washington.

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Obama Moves To Cap Pay For Bailout Recipients

Executives from companies accepting federal bailout money will have to adhere to strict limits on their pay, President Obama said Wednesday, reacting to a spate of reports that the firms were taking taxpayer dollars while handing out lavish bonuses and junkets.

The White House plan would place a $500,000 cap on the annual salaries of executives whose companies accept federal bailout funds. Obama, flanked by Treasury Secretary Timothy Geithner, called huge executive compensation packages "the height of irresponsibility."

"This is America. We don't disparage wealth," the president said. "We don't begrudge anybody for achieving success, and we certainly believe that success should be rewarded.

"But what gets people upset, and rightfully so, are executives being rewarded for failure — especially when those rewards are subsidized by U.S. taxpayers, many of whom are having a tough time themselves," he said.

"We're going to be demanding some restraint in exchange for federal aid," he added.

The disclosure on Tuesday that Wells Fargo bank was planning a lavish Las Vegas outing for its mortgage writers, though it received federal bailout money, has helped fuel outrage among average Americans. After first defending the Las Vegas trip, Wells Fargo later said it had been canceled.

"We're going to be demanding some restraint in exchange for federal aid — so that when firms seek new federal dollars, we won't find them up to the same old tricks," Obama said.

Obama, who has called Wall Street bankers "shameful" for giving themselves $18 billion in bonuses, told NBC Nightly News on Tuesday that executives at financially strapped firms should not be living "high on the hog."

In addition to the salary cap, Obama and Geithner announced restrictions on bonuses, payouts or "golden parachute" severance packages for companies accepting taxpayer assistance.

The most restrictive limits would apply only to the largest firms that receive considerable government assistance. Healthy banks that receive smaller government infusions of capital would have more leeway.

Firms that wish to pay their executives above the $500,000 threshold would be allowed to compensate them with stock that could not be sold until the rescue funds from the government are paid back, the White House official said.

Congress is already looking into similar proposals. The move comes before the Obama administration's expected unveiling next week of a new framework for spending the money that remains in the $700 billion financial rescue fund.

Some Republicans also have raised concern.

"In ordinary situations where the taxpayers' money is not involved, we shouldn't set executive pay," said Sen. Richard Shelby of Alabama, the top Republican on the Senate Banking Committee. "But where you've got federal money involved, taxpayers' money involved, TARP money involved ... the way they have spent it, with no accountability, is getting close to being criminal."

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