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.
NPR logo

Obama Announces Limits to Executive Pay

  • Download
  • <iframe src="https://www.npr.org/player/embed/100255351/100255327" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript
Obama Announces Limits to Executive Pay

ROBERT SIEGEL, host:

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

MELISSA BLOCK, host:

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.

Copyright © 2009 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.

NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.