Obama Announces Limits to Executive Pay President Barack Obama and Treasury Secretary Tim Geithner have 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.

Obama Announces Limits to Executive Pay

Obama Announces Limits to Executive Pay

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President Barack Obama and Treasury Secretary Tim Geithner have 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.


From NPR News, it's ALL THINGS CONSIDERED. I'm Robert Siegel.


And I'm Melissa Block. President Obama has lowered the ceiling on executive pay for companies that get extraordinary help from the government. The president says he won't tolerate lavish compensation packages in the midst of an economic crisis. The new rules follow public outrage. Some banks and other firms that received government aid have continued to fly corporate jets, doled out big bonuses and made expensive office renovations.

NPR's John Ydstie has more.

JOHN YDSTIE: The rules go well beyond those set by the Bush administration for firms that received the first $350 billion in aid from the government's $700 billion TARP rescue program. Among the new restrictions announced by President Obama at the White House today, is a limit on executive pay.

President BARACK OBAMA: Top executives at firms receiving extraordinary help from U.S. taxpayers, will have their compensation capped at $500,000, a fraction of the salaries that have been reported recently.

YDSTIE: In addition to the $500,000 cap, executives could receive additional compensation in the form of stock options, said Mr. Obama. But they would not be allowed to take a payout on those stocks until taxpayers are paid back fully. In making the announcement, President Obama said executives at U.S. financial firms receiving help, need to do their part to restore trust in the system.

Pres. OBAMA: We all need to take responsibility. And this includes executives at major financial firms, who turned to the American people had in hand, when they were in trouble, even as they pay themselves customary lavish bonuses. As I said last week, this is a height of irresponsibility. It's shameful.

YDSTIE: The toughest restrictions announced today are reserved for companies in trouble that receive exceptional assistance from the government, the kind received previously by AIG, Citigroup and Bank of America. Healthy firms, like many of the 300-plus banks, who've gotten capital injections from the TARP program, have fewer restrictions, partly because the government wants them to take government funds to stabilize the financial system and increase lending. Those healthy firms can get around the $500,000 compensation cap quite easily by disclosing compensation in excess of that amount and by explaining how it would not encourage excessive risk-taking by their executives.

Still, Scott Talbott, chief lobbyist for the Financial Roundtable, expressed concerns about those restrictions. He said they might deter healthy firms from participating in the TARP program. Talbott also worried about a possible brain drain from the financial services industry.

Mr. SCOTT TALBOTT (Chief Lobbyist, Financial Services Roundtable): Executives who have the education, experience and know-how to operate and run a global financial services firm is very small. And so, limiting their ability for the markets to reward them, to compensate them for those unique set of skills, could have a chilling effect at a time when the industry and the economy needs that expertise now.

YDSTIE: The new rules increased the ability to take back bonuses from executives, who used deception to get them. There are also additional restrictions on golden parachutes, the payout executives often get when they leave companies. And there are requirements aimed at limiting company expenditures on things like corporate jets and lavish events.

Attorney Richard McHugh, who runs the compensation practice at the law firm, Dow Lohnes in Washington, says he thinks the administration achieved a good balance.

Mr. RICHARD MCHUGH (Attorney, Dow Lohnes): I think the policy is recognizing that there is a tension between the two issues - protecting the taxpayers and making sure these companies can attract and retain people to move their companies forward.

YDSTIE: The new rules are not retroactive. They will apply only to companies who get aid in the future. Administration officials hope the new rules may play a role beyond the current crisis in providing a roadmap for new regulations and corporate governance rules.

John Ydstie, 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."