House Works To Limit Executive Pay

The House of Representatives took the first step toward an overhaul of financial regulation by passing a bill that aims to curb executive pay deemed excessive. The bill would give shareholders a voice in executive pay and allow federal regulators to restrict pay practices that might encourage risky behavior.

Copyright © 2009 NPR. For personal, noncommercial use only. See Terms of Use. For other uses, prior permission required.

MADELEINE BRAND, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Madeleine Brand.

ROBERT SIEGEL, host:

And I'm Robert Siegel.

The House has taken the first step toward overhauling the financial regulatory system. It passed a bill to limit CEO pay. The legislation aims to curb exorbitant salaries and bonuses, the kind that supporters say encouraged the risky behavior leading up to the financial crisis.

NPR's Audie Cornish reports.

AUDIE CORNISH: The House legislation is nicknamed Say-On-Pay. Under the measure supported by the Obama administration, company shareholders would get to vote each year on the structure, salaries and bonuses of their top executives. And a company's compensation board would have to be certified as independent of the firm. Then the bill goes further than the White House. Lawmakers added a provision to give financial regulators new power to stop compensation plans deemed to encourage excessive risk.

House Financial Services Committee Chairman Barney Frank.

Representative BARNEY FRANK (Democrat, Massachusetts; Chairman, Financial Services Committee): Excessive risk is when the people who take the risk pay no penalty when it goes wrong. When they have a heads they win, tails they break even situations, when the company loses money and the economy may suffer, but the decision makers do not.

CORNISH: Opponents such as Georgia Republican Tom Price said the bill goes too far.

Representative TOM PRICE (Republican, Georgia): What we do have concerns about, grave concerns, is the intervention of the federal government into one business after another, after another. This is just another example of that. It's a terrible idea. It strikes at the very core of the free market principles that have made us the greatest nation in the history of the world.

CORNISH: Republicans failed to win support for their alternative bill. It would've let shareholders vote to opt out of the program. And it would've dropped any role for federal regulators, such as the Securities and Exchange Commission.

Alabama's Spencer Bachus, the top Republican on Financial Services.

Representative SPENCER BACHUS (Republican, Alabama): If it took them 30 years to catch Bernie Madoff, do you really think the SEC can do a better job of identifying inappropriate risk than the vast majority of financial institutions' executives?

CORNISH: Democrats dismissed the objections as misleading. They pointed out that the shareholder vote would be non-binding. And the measure would only apply to companies with more than a billion dollars in assets. And it wouldn't get into the nitty-gritty of how much any particular executive gets paid, said Congressman Frank.

Rep. FRANK: There is no mandate here to set wages for anybody. There is no mandate to say this percentage is bonuses and that percentage is pay. It is a mandate only to act where the structure incentivizes risk.

CORNISH: The vote on the bill was 237 to 185. It came a day after a report from the New York attorney general said that some banks that received bailouts had paid out million dollar bonuses. The legislation is the first part of a larger financial regulatory overhaul Congress plans to work on this fall.

Audie Cornish, NPR News, the Capitol.

Copyright © 2009 NPR. All rights reserved. No quotes from the materials contained herein may be used in any media without attribution to NPR. This transcript is provided for personal, noncommercial use only, pursuant to our Terms of Use. Any other use requires NPR's prior permission. Visit our permissions page for further information.

NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR's programming is the audio.

Comments

 

Please keep your community civil. All comments must follow the NPR.org Community rules and terms of use, and will be moderated prior to posting. NPR reserves the right to use the comments we receive, in whole or in part, and to use the commenter's name and location, in any medium. See also the Terms of Use, Privacy Policy and Community FAQ.