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."