White House Takes Step To Rein In Executive Pay

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Treasury Secretary Tim Geithner said the government will not directly limit executive compensation. But he did announce Wednesday that the administration will ask Congress to give shareholders a voice in pay levels and to provide a firewall between company management and executive compensation committees.


It's MORNING EDITION from NPR News. Renee Montagne is away. I'm Steve Inskeep. Good morning.

President Obama's administration is aiming to change the way that corporate executives set their pay. The administration chose a man to monitor compensation. Kenneth Feinberg gets the job overseeing everything from GM to AIG. His task is limited to firms that receive large amounts of federal bailout money, but the White House is not stopping there. The administration also indicated yesterday that it supports legislation giving shareholders a greater say in compensation at all publicly traded firms.

Here's NPR's John Ydstie.

JOHN YDSTIE: Reining in compensation at firms receiving government assistance became a huge issue after the disclosure of big bonuses being paid at AIG. Yesterday, the administration outlined the final details aimed at limiting pay packages for top executives at firms receiving TARP bailout money. And it added to the mix the appointment of Feinberg as the TARP compensation czar. Treasury official Gene Sperling briefed reporters on Feinberg's role in a conference call.

Ms. GENE SPERLING (Treasury Official): He will have the authority to review the compensation plans for the companies who we have described as receiving exceptional assistance.

YDSTIE: Those include the seven firms who've gotten the most money from the TARP bailout program: AIG, Bank of America, Citigroup and GM and Chrysler and their financing arms. Sperling said Feinberg will be able to strike down specific pay packages.

Ms. SPERLING: He will have the ability to disapprove a compensation arrangement for companies with exceptional assistance where the salary or other compensation is found to be inappropriate, unsound or excessive.

YDSTIE: The appointment of Feinberg came along with a broader administration initiative on executive pay yesterday. It's aimed at curbing faulty compensation practices which the administration and others believe fueled the high risk taking in the financial sector and contributed to the financial crisis. There's been concern in the business world that the administration's effort might be draconian, given the public backlash against big executive paychecks. Treasury Secretary Timothy Geithner tried to ease those concerns yesterday.

Secretary TIMOTHY GEITHNER (Department of the Treasury): We do not believe it's appropriate for the government to set caps on compensation. We are not going to prescribe detailed prescriptive rules for compensation. We think all those things would be ineffective, could be counterproductive in some ways, and we're going to try to find the right balance looking forward.

YDSTIE: What the administration will do, said Geithner, is seek legislation that would strengthen the independence of compensation committees on boards of directors that set pay for executives. It will also seek to give shareholders in companies the right to cast nonbinding votes on compensation packages. Britain already has such a law. Paul Hodgson of the Corporate Library, a watchdog group, says the law has been effective in the U.K. even though shareholder votes are nonbinding.

Mr. PAUL HODGSON (Corporate Library): It's a brave company that would ignore the majority of its shareholders. Companies have responded fairly rapidly when they know that their shareholders are unhappy with them.

YDSTIE: Next week, the administration moves beyond executive pay to address the failures in the government's oversight of the financial system. On Wednesday, Secretary Geithner is expected to outline legislation to overhaul financial regulation. The administration had hoped to simplify and strengthen the system by cutting the patchwork quilt of bank regulators. It now appears that won't happen, says Doug Elliott, a former investment banker and now a fellow at the Brookings Institution.

Mr. DOUGLAS ELLIOTT (Fellow, Brookings Institution): It's always been clear there would be tremendous turf battles if you tried to eliminate any of the regulators. They all have strong supporters, and they all, of course, want to continue to have their own fiefdoms.

YDSTIE: It's disappointing, though, says Elliot, that even the biggest financial crisis in decades appears not to have provided the political momentum to rationalize banking regulation.

John Ydstie, NPR News, Washington.

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