US President Barack Obama was to announce yesterday that he’s imposing a cap of US$500,000 on the compensation of top executives at companies that receive significant federal assistance in the future, responding to a public outcry over Wall Street excess.
Any additional compensation will be in restricted stock that won’t vest until taxpayers have been paid back, said an administration official, who requested anonymity. The rules will force greater transparency on the use of corporate jets, office renovations and holiday parties as well as golden parachutes offered to executives when they leave companies.
Public outrage over compensation has been building since October, when Congress passed a US$700 billion financial-rescue plan. Bonus payouts totaling US$18.4 billion last year to Wall Street executives and employees further inflamed Americans.
“People are still getting huge bonuses despite the fact that they’re getting taxpayer money, which I think infuriates the public,” Obama said in an interview on Tuesday night with CNN.
Obama and Treasury Secretary Timothy Geithner were to announce the plan at 11am yesterday. The guidelines will focus on companies that, going forward, take “exceptional” amounts of bailout money from the Treasury, as Citigroup Inc and American International Group Inc have in the past.
The cap will not be retroactive for companies that have already taken rescue money, although those companies must agree to strict monitoring and oversight, the official said.
The populist backlash is hitting the halls of Congress.
Senator Claire McCaskill, a Democrat who proposed last week a bill to limit compensation, has been inundated with messages from voters fuming over corporate executives.
The anger has been fueled by accounts of bonuses, the use of private jets and the purchase of luxury goods.
Those headlines collide with reports of the US losing an average of almost half a million jobs every month, 1.1 million homes being foreclosed upon in the last four months, retirement savings dwindling and bankruptcies mounting.
McCaskill’s legislation would block companies from paying executives more than the US president’s US$400,000 annual salary as long as the companies rely on federal aid. The compensation cap would cover salary, bonuses and stock options.
“These people are idiots,” McCaskill, 55, said on Friday on the Senate floor. “You can’t use taxpayer money to pay out US$18 billion in bonuses. What planet are these people on?”
Senator Byron Dorgan, a Democrat, said he plans to introduce an amendment requiring companies that accept bailout money to make their bonuses public.
The complaints over executive compensation have sparked a backlash from at least one executive.
JPMorgan Chase & Co chief executive officer Jamie Dimon said this week that it’s wrong for politicians to criticize Wall Street pay without differentiating between companies where compensation is commensurate with performance.
“It’s unfair to talk about us as one,” Dimon, who was paid US$1 million last year and didn’t accept a bonus, said at a conference in New York. “Not every company was responsible.”
Goldman Sachs Group Inc, Morgan Stanley, Merrill Lynch & Co, Lehman Brothers Holdings Inc and Bear Stearns Cos awarded their employees a cumulative US$145 billion in bonuses from 2003 through 2007, estimates based on company reports showed.