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Obama sets limits on future executive compensation
MCT
Issue date: 2/5/09 Section: News
In a pointed effort to assuage public anger over sky-high pay for corporate executives of failing companies, President Barack Obama proposes tight limits on compensation for business leaders who accept major infusions of tax dollars during hard times, including a $500,000 pay cap for top execs.
The rules are designed to keep executives of faltering companies from taking home huge compensation packages even though their firms crash and taxpayers bail them out. The new rules also seek to focus executives on long-term gains by permitting them to receive company stock that could be cashed in only after the companies are going well enough to begin repaying their federal aid.
"We all need to take responsibility," Obama said at the White House with Treasury Secretary Timothy Geithner at his side. "This includes executives at major financial firms who turned to the American people, hat in hand, when they were in trouble, even as they paid themselves customary lavish bonuses."
But the rules, while tight by traditional Wall Street standards, will apply only going forward, not to executives of companies that have already received massive federal aid _ companies such as Detroit automakers and major Wall Street financial institutions _ unless they sought further bailout funds. The new restrictions, mandated by presidential executive order, would be waived for smaller aid recipients if executive pay was made public.
How effective the new rules might prove to be is a question. Corporate America has shown remarkable ingenuity in getting around such government restrictions. When restraints were imposed in the 1980s, for example, amid public concern about excessive pay and bonuses, it wasn't long before companies developed stock option programs that poured money into executives' pockets while skirting those rules.
Politically, the restrictions on executive compensation were designed to meet two goals. First, the White House wants to demonstrate that the president is a vigilant steward of the public's money at a time when he is proposing to spend almost $1 trillion on an economic stimulus program and Republicans are attacking the plan as wasteful and ineffective.
The rules are designed to keep executives of faltering companies from taking home huge compensation packages even though their firms crash and taxpayers bail them out. The new rules also seek to focus executives on long-term gains by permitting them to receive company stock that could be cashed in only after the companies are going well enough to begin repaying their federal aid.
"We all need to take responsibility," Obama said at the White House with Treasury Secretary Timothy Geithner at his side. "This includes executives at major financial firms who turned to the American people, hat in hand, when they were in trouble, even as they paid themselves customary lavish bonuses."
But the rules, while tight by traditional Wall Street standards, will apply only going forward, not to executives of companies that have already received massive federal aid _ companies such as Detroit automakers and major Wall Street financial institutions _ unless they sought further bailout funds. The new restrictions, mandated by presidential executive order, would be waived for smaller aid recipients if executive pay was made public.
How effective the new rules might prove to be is a question. Corporate America has shown remarkable ingenuity in getting around such government restrictions. When restraints were imposed in the 1980s, for example, amid public concern about excessive pay and bonuses, it wasn't long before companies developed stock option programs that poured money into executives' pockets while skirting those rules.
Politically, the restrictions on executive compensation were designed to meet two goals. First, the White House wants to demonstrate that the president is a vigilant steward of the public's money at a time when he is proposing to spend almost $1 trillion on an economic stimulus program and Republicans are attacking the plan as wasteful and ineffective.
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