Treasury, Fed Outline Rules To Limit Exec Pay
MELISSA BLOCK, host:
From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block at NPR West in California.
MICHELE NORRIS, host:
And I'm Michele Norris in Washington, D.C.
First, it was the Obama administration's pay czar and now the Federal Reserve has joined the assault on executive compensation. Today, the pay czar Kenneth Feignberg announced restrictions for top executives at seven companies that have gotten the most government aid during the financial crisis. And the Fed announced guidelines that would affect a lot more banks. We'll talk with Feignberg in just a moment.
First, NPR's John Ydstie has an overview of the day's event.
JOHN YDSTIE: Feignberg's restrictions on executive pay apply only to 175 top earning executives at seven firms, who together have received hundreds of billions of dollars in government aid. Some, like AIG, GM and Chrysler are essentially wards of the government. Others like CitiGroup and Bank of America are struggling. Feignberg said he examined the pay plans initially submitted by the seven firms and found them excessive. He began a protracted period of negotiation that led to today's binding order.
The headline numbers include an average 90 percent reduction in cash compensation for executives, though much of that could be replaced by compensation and stock. Feignberg also placed a cap of $500,000 on cash salaries for most of the 175 employees. And he requires that bonuses be paid in stock and based on performance. Stock would have to be held for several years to focus employees on long-term profitability. Speaking at a separate White House event, President Obama said Feignberg had done a good job.
President BARACK OBAMA: I believe he's taken an important step forward today in curbing the influence of executive compensation on Wall Street, while still allowing these companies to succeed and prosper.
YDSTIE: However, Feignberg's direct effect on 2009 pay at the seven companies is limited to November and December. He said he will not take back pay that employees earned in the first 10 months of the year. His restrictions may have a larger effect next year because they become the baseline for negotiating 2010 compensation at the seven companies. Meanwhile, the Federal Reserve today released its guidelines for pay. They're aimed at limiting excessive risk taking at the thousands of banks the Fed regulates right down to the level of loan officer. Chief lobbyist Scott Talbott of the Financial Services Roundtable says the industry is onboard.
Mr. SCOTT TALBOTT (Chief Lobbyist, Financial Services Roundtable): Defense approach is balanced and measured, and they focus on reducing excessive risk. But they don't go so far as setting pay caps.
YDSTIE: Bank analyst Nancy Bush of NAB Research says she thinks today's dual announcements by the Fed and Treasury are aimed at showing some government action ahead of the yearend bonus season on Wall Street. Bush says Goldman Sachs, for instance, has signaled it will pay out somewhere around $20 billion in bonuses.
Ms. NANCY BUSH (Bank Analyst, NAB Research): I think they're trying to dampen populist anger before those numbers become known. I am very doubtful about whether this is going to be enough to do that.
YDSTIE: Pay czar Feignberg said he hoped his guidelines would become a model for Wall Street firms. Nancy Bush was doubtful they would have a significant effect.
John Ydstie, NPR News, Washington.
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