President Obama Caps Executive Compensation at $500K for Firms Receiving Bailout Funds

Seeking to "restore trust" in the nation's financial industry, Obama imposed a pay cap.

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By Michael Saul
Daily News Political Correspondent

Seeking to "restore trust" in the nation's financial industry, President Obama imposed a $500,000 pay cap for top executives at teetering firms needing federal payout money.

"This is America. We don't disparage wealth. We don't begrudge anybody for achieving success. And we certainly believe that success should be rewarded," Obama said today.

"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."

Obama lambasted top executives who grant themselves enormous compensation packages while turning to the American taxpayer when their firms are in trouble. He described the practice as a "shameful," "bad taste" and the "height of irresponsibility."

"And I will not tolerate it as President," Obama declared.

According to the new rules, senior executives at firms that get "exceptional assistance" from the federal government - the massive help that AIG, the Bank of America and Citigroup already received -- will be barred from receiving more than $500,000 in compensation.

Any additional pay for these senior executives must be limited to restricted stock that they can pocket when the government has been repaid with interest.

Generally healthy institutions would have more leeway. They also face the $500,000 limit if they're getting government help, but the cap can be waived with full public disclosure and a shareholder vote.

Companies receiving federal aid are going to have to disclose publicly all the perks and luxuries bestowed upon senior executives, Obama said. The firms will be required to provide an explanation to the taxpayers and to shareholders as to why these expenses are justified.

"And we're putting a stop to these kinds of massive severance packages we've all read about with disgust," he said. "We're taking the air out of the golden parachute."

Treasury Secretary Timothy Geithner, who accompanied the President at the announcement, said these new executive compensation policies are designed to "strengthen the public trust that our financial recovery programs will get credit flowing again and get job creation moving once more."

On Wall Street, there is concern that compensation caps will stymie a company's ability to attract the best employees, and could force some top talent to fee.

"If you cap compensation, the best and the brightest are still going to figure out a way to make money and it may not be on Wall Street, when those minds are needed most," said Meredith Whitney, an analyst at Oppenheimer & Co., on Bloomberg Television.

These concerns, though, aren't attracting much sympathy on Capitol Hill, even among Republicans.

"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, and the way they have spent it, with no accountability, is getting close to being criminal."

Obama called these new guidelines the beginning of a long-term effort. Next week, the administration plans to announce a sweeping new framework for spending what remains of the $700 billion financial industry bailout that Congress approved last year.

"We're going to examine the ways in which the means and manner of executive compensation have contributed to a reckless culture and quarter-by-quarter mentality that in turn have wrought havoc in our financial system," he said.

"We're going to be taking a look at broader reforms so that executives are compensated for sound risk management and rewarded for growth measured over years, not just days or weeks."

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