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Last updated: February 5, 2009 12:01 am
President Barack Obama on Wednesday imposed sweeping restrictions on pay for executives at banks bailed out by taxpayers in an attempt to curb Wall Street excesses and stem public anger before an expected White House request for new emergency funds for the financial sector.
Describing recent Wall Street bonuses as “shameful” and expressing “disgust” at chiefs who reward themselves for failure, Mr Obama said the curbs were aimed at “taking the air out of the golden parachute.”
“This is America,” he said on Wednesday. “We don’t disparage wealth . . . but what gets people upset – and rightfully so – are executives being rewarded for failure especially when those rewards are subsidised by US taxpayers.”
Under the plans, compensation for top executives of companies that receive “exceptional assistance” from the government in the future would be capped at $500,000 (£345,000) a year. Executives could also receive restricted stock, which could not be sold before the government had been repaid.
Executives of companies receiving general assistance – such as the Troubled Asset Relief Programme (Tarp) – would face the same restrictions, but could waive them if they fully disclosed their pay and held a non-binding shareholder vote.
Administration officials said pay curbs for exceptional assistance would not be retroactive, and would apply only to companies seeking new agreements. The pay curbs would probably apply only to the top 25 or so executives from institutions receiving public help, suggesting that other employees could continue being paid more.
Financial groups that have received emergency capital injections from the government as well as billions of dollars in guarantees on their bad assets, such as Citigroup, AIG and BofA, indicated that they had no intention of changing their compensation policies. The companies declined to comment but people close to the situation argued that the measures were not retroactive and they had already taken action to rein in executive pay.
The move is an attempt by the White House to regain the political initiative against mounting anger over high bonuses and the withdrawal of senior Obama appointees over tax arrears – and ahead of a probable return to Congress for a further $1,000bn or so in new emergency funds.
Insiders believe that the plan, which could be announced next week, is likely to centre on insurance-style guarantees on portfolios of bank assets rather than a “bad bank” to acquire toxic assets.
They added that a “bad bank” to acquire credit securities that have already been heavily marked down was still likely to be created but said that the entity would be smaller and less wide-reaching than previously anticipated due to the problems of valuing assets and likely Congressional opposition to the use of taxpayers’ money to unburden banks’ balance sheets.
Last week, Mr Obama attacked Wall Street for paying out almost $20bn in bonuses last year amid its greatest losses in history.
“Obama is recognising that you have to do a better job of selling the bail-outs and the stimulus to the public in a really angry climate such as this,” said a Democratic official.
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