WORLD> America
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WORLD> America
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US unveils broad effort to limit executive pay
(Agencies)
Updated: 2009-10-23 09:17 President Barack Obama welcomed Treasury's decision and urged Congress to pass legislation to give shareholders a voice in executive pay packages. "It does offend our values when executives of big financial firms that are struggling to pay themselves huge bonuses even as they rely on extraordinary assistance to stay afloat," Obama said.
"I hope so, but that would be voluntary," he said. "It's not the government's business." Some observers said the changes could have a broader influence on pay beyond the seven companies. "It's going to put them in a position of having to be more aggressive in defending their arrangements now that you've got an alternative out there that's been blessed by the government," said Mark Borges, a principal with Compensia, a Northern California compensation consulting firm. It's also possible the restrictions could help govern pay at the thousands of banks that would be affected by the Fed's plan, said Charles Elson, director of the University of Delaware's Weinberg Center for Corporate Governance. "It's highly probable that the Fed could use this as a model in their own guidelines, and yes, I think that would have a significant impact on pay," he said. Some analysts saw the potential for restrictions to backfire. Yermack said linking pay to long-term incentives like deferred stock can encourage more excessive risk-taking, not less. "If you want people to take more risks, pay them more in stock," he said. "It holds out the possibility of very big gains in a way that fixed contracts do not." Others said the restrictions reinforced what many financial observers see as a banking system divided between the haves and have-nots. They wondered whether pay caps could jeopardize taxpayer money by making it harder for bailed-out firms to retain and hire top talent. "You have got the companies that are unencumbered and can offer anyone anything they want, and you've got the other companies that are stuck with what they have," said David Schmidt, a senior consultant on executive pay at James F. Reda & Associates. "It creates a bit of a dilemma in banks' efforts to repay taxpayers." A Bank of America spokesman complained that the restrictions would hurt its competitiveness. "Competitors not subject to the pay restrictions already are exploiting this situation by identifying our top performers and using pay concerns to recruit them away for fair market compensation," spokesman Scott Silvestri said. GM said it will adopt the compensation changes outlined by Feinberg by shifting its pay packages toward non-cash compensation tied to company performance. CEO Fritz Henderson's base salary was cut 30 percent to about $1.3 million earlier this year when GM accepted government loans. Henderson received compensation valued at about $8.7 million in 2008, but much of that included stock and options that now are nearly worthless due to GM's bankruptcy filing. Chrysler Group LLC CEO Sergio Marchionne and other Fiat executives who work for both Chrysler and Fiat were exempted from the pay cuts as part of the agreement with the US government to take over management control of Chrysler. Executives who work solely for Chrysler could be affected, but many of the top earners under Chrysler's former owner have left the company. Under the Fed proposal, the 28 biggest banks would develop their own plans to make sure compensation doesn't spur undue risk-taking. If the Fed approves, the plan would be adopted and bank supervisors would monitor compliance. At smaller banks - where compensation is typically less - Fed supervisors will conduct reviews. Those banks don't have to submit plans. The Fed refused to identify the 28 banks that will have to submit plans. But Citigroup, Bank of America and Wells Fargo & Co. are usually included on such lists. Nearly 6,000 banks regulated by the Fed would be covered.
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