WASHINGTON, Feb. 4, 2009
Obama Reins In Bailout Company's Fat Cats
President Imposes $500,000 Cap On Executive Pay Tied To Bailout Money To Take "The Air Out Of The Golden Parachute"
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Play CBS Video Video Obama Caps Exec Pay President Obama and Treasury Secretary Geithner announced today executives of companies receiving federal aid would have their salaries capped at $500,000 dollars, a fraction of the salaries reported in the last pay cycle.
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Video Obama On Stimulus President Obama spoke with Katie Couric about his nearly $1 trillion economic stimulus plan that is awaiting congressional approval.
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Video Obama Takes Responsibility President Barack Obama is taking the blame for his troubled cabinet nominees after Tom Daschle withdrew his name due to tax problems. Bill Plante reports.
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"A failure to act, and act now, will turn crisis into a catastrophe and guarantee a longer recession, a less robust recovery, and a more uncertain future. Millions more jobs will be lost. More businesses will be shuttered. More dreams will be deferred," President Barack Obama said Wednesday. (AP Photo/Ron Edmonds)
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Special Report First 100 Days Follow the Obama administration as it gets to work after the inauguration.
Mr. Obama announced the unusual government intervention into corporate America at the White House, with Treasury Secretary Timothy Geithner at his side. The president said the executive-pay limits are a first step, to be followed by the unveiling next week of a sweeping new framework for spending what remains of the $700 billion financial industry bailout that Congress created last year.
The pay limit comes amid a national outcry over huge bonuses to executives who head companies that seek taxpayer dollars to remain afloat. The demand for limits was reinforced by revelations that Wall Street firms paid more than $18 billion in bonuses in 2008 amid the economic downturn and the massive infusion of taxpayer dollars.
The limit would apply to top-paid executives at the most distressed financial institutions that are negotiating bailout agreements with the federal government. It also would apply to other banks that receive aid, but they could get around the limits by publicizing to shareholders plans to exceed the salary cap.
The limits would not apply retroactively to any bank that received money from the first half of the $700 bailout allocated by Congress. For example, the restriction would not apply to such firms as American International Group Inc., Bank of America Corp., and Citigroup Inc., that already have received such help.
Since the rules are not retroactive, they won't affect Bank of America, which has already received $45 billion in bailout funds. Its CEO Ken Lewis earned more than $5 million in salary and cash bonuses in 2007 - and another $14 million in stock options and other income, reports CBS News correspondent Anthony Mason.
Nor will it affect Wells Fargo, which has received $25 billion in TARP money, Mason adds. Its CEO John Stumpf took home more than $11 million in salary, bonus and stock.
It was revealed Tuesday that Wells Fargo canceled a pricey Las Vegas casino junket for employees after a torrent of criticism.
Mr. Obama touted the broad symbolism of his action.
"This is America. We don't disparage wealth. We don't begrudge anybody for achieving success," Mr. Obama said. "But what gets people upset - and rightfully so - are executives being rewarded for failure. Especially when those rewards are subsidized by U.S. taxpayers."
"There is a deep sense across the country that those who were not ... responsible for this crisis are bearing a greater burden than those who were," Geithner said.
In 1980, according to a Forbes magazine study, executive compensation was 40 times the average worker's pay; by 2007, that had soared to more than 400 times, reports Mason.
Firms that want to pay executives above the $500,000 threshold would have to use stock that could not be sold or liquidated until they pay back the government funds.
Generally healthy institutions that get capital infusions from the Troubled Asset Relief Program in the future will have more leeway. They also will face the $500,000 limit, but the cap can be waived with full public disclosure and a nonbinding shareholder vote.
Mr. Obama said that massive severance packages for executives who leave failing firms are also going to be eliminated. "We're taking the air out of golden parachutes," he said.
Other new requirements on "exceptional assistance" will include:
The administration also will propose long-term compensation restrictions even for companies that don't receive government assistance, Mr. Obama said.
Those proposals include:
Compensation experts in the private sector have warned that intrusions into the internal decisions of financial institutions could discourage participation in the rescue program and slow down the financial sector's recovery. They also argue that it could set a precedent for government regulation that undermines performance-based pay.
"One of the big questions is whether it will make it more difficult to recruit and retain executives at these companies," said Claudia Allen, chair of corporate governance at the Chicago-based law firm of Neal, Gerber & Eisenberg.
The $500,000 cap "is a very tight limit," she said.
Timothy J. Bartl, vice president and general counsel for the Center On Executive Compensation, said the president's actions are a unique situation given the government's role bailing out troubled institutions.
"We do not view it as something that ought to be extended beyond this circumstance," he said.
On Capitol Hill, some lawmakers had been pushing for even stricter caps.
Sen. Claire McCaskill, D-Mo., and Sen. Bernard Sanders, I-Vt., have proposed that no employee of an institution that receives money under the $700 billion federal bailout can receive more than $400,000 in total compensation until it pays the money back. The figure is equivalent to the salary of the president of the United States.
Even some Republicans, angered by company decisions to pay bonuses and buy airplanes while receiving government help, have few qualms about restrictions.
"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."
© MMIX, CBS Interactive Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.
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Add a Comment See all 506 Comments
- Oh wait, it''s NO JUST EXECs. Bank of America gives out bonus to employees that are more than a lot of people make in a year!
- Reply to this comment
- It is hard to worry about these so-called top talents at these banks not wanting to stick around. There are plenty of college graduates out there waiting for a chance at those jobs. Besides, as Jon Stewart said, You Don''''t Have Best People!
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Posted by catlady1412 at 11:52 PM : Feb 04, 2009
I don''t worry about it. Get the old "talent" (that didn''t work)out of there and bring on the new whom might actually bring innovative business strategies that actually build the economy instead of milking it. - Reply to this comment
- Bureaucrats cannot run their own geovernment departments let alone a for profit company. But sadly our democrapic government is full of morons like "bluenomas" who think that government knows best about everything.
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I never said that government knows best about everything edinburg texas, if I thought that, then you''ve got plenty of corrupt reps and dems in bed with your businesses and banks there. If you''d pull your head out you''d see it. - Reply to this comment
- U.S. executive compensation packages are by far the highest in the world. They must be trimmed to match those of the rest of the world. Republicans in congress were demanding wages of UAW be trimmed to match those of U.S. workers in foreign owned auto makers, but they completely disregarded all those excesses of Big3 executives. They also disregarded the huge excesses earned by executives of U.S. financial institutions. Instead they made laws to allow those executives to pay at only 15% tax rate inspite of their huge earings like in $hundreds of millions. I hope Democrats in congress can again raise minimum wage while they limit executive compensations. This time hopefully would be easier to do because there are fewer Republicans now except in the Senate where there are still too many Republicans.
- Reply to this comment
- Now, all we have to do is get them (Congress & the administration) to do some of the same to themselves. Limit Junkets and other perks that we find mostly frivolous that cost a lot of money. Take Pelosi''s plane away and let her go home for the weekend like the rest of us rather than doing it on the taxpayer wallet. The same applies to all 534 other members of Congress. Stop all the BS hearing for things that really mean nothing and tahat are only for getting their name before the public and using some small meins nothing thing for soundbytes as to their indignity to what has happened. They do many of the same things and haven''t been caugt. Obama, if you want to clean things up, look in your own nest first and then spread it out. The bureaucrats spend and waste more taxpayer money than any other group by far. Walk the walk Congress and get control of your own pocket book before you try to blame otthers. They can''t begin to waste the money you do!
- Reply to this comment
- It is hard to worry about these so-called top talents at these banks not wanting to stick around. There are plenty of college graduates out there waiting for a chance at those jobs. Besides, as Jon Stewart said, You Don''t Have Best People!
- Reply to this comment
- ...put a cap on the sr. mgmnt they''''ll all leave. Wah. All that talent. All of that corrupt theiving talent right out the door. That''''s just heartbreaking. You''''re an idiot.
Posted by bluenomas at 10:40 PM : Feb 04, 2009
I would rather FOLD my company than to take money from the feds & have to be in bed with them.
Bureaucrats cannot run their own geovernment departments let alone a for profit company. But sadly our democrapic government is full of morons like "bluenomas" who think that government knows best about everything.
I have already pulled my money out of companies that took government money. At least now, when Obama runs those companies into the ground with his great business skills he learned from running a successful business (didn''t he?), i''m still good! Let em all fail! - Reply to this comment
- I am still waiting for those bouncing bubble buttts mama drama....
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Posted by Beodishazmi3 at 10:32 PM : Feb 04, 2009
Beodi - is that you??? (It''s Azul...Bluecowgirl 9/11 CBS days...?) - Reply to this comment
- hey repo man...
I''m perplexed. First I''m reading your comment to say we shouldn''t be kissing the A and giving the big-money-just-because-you-sit-on-your-but-so-well to CEO''s ...
then you say:
"Our domestic industry already has fundamental competitive disadvantages. Getting rid of our workaholic CEO''''s would be just one more."
Now! You say (paraphrase) -- "we have disadvantages, getting rid of workaholic CEO''s would make us worse off"
Huh? - Reply to this comment
- So now Obama is going to tell you how much you can make. HELL NO !!!
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Posted by the_2258 at 10:54 PM : Feb 04, 2009
It''s not about the government telling you how much you can make. It''s about ME and YOU lending billions of dollars to these firms to bail them out because these brains ran their companies into the ground while taking our money!!! - Reply to this comment
- So now Obama is going to tell you how much you can make. HELL NO !!!
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Posted by the_2258 at 10:54 PM : Feb 04, 2009
If Obama wants to limit my bonus to $500K/year he''s very welcome to do it.
In fact, if he can get me $1k this year I''ll donate half of it back to him. Last year I got zip, "Hard times, you know." - Reply to this comment
- So, not just about CEO''''s... about a system that needs to change.
The criers that are saying our new administration isn''''t about change aren''''t looking at change that is working correctly.
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Posted by velma179 at 10:51 PM : Feb 04, 2009
right velma, but we are talking about CEOs of financial instituations that have been sticking it to the average working class Americans, green college kids, unsuspecting less educated folks,(etc..and the list goes on) for years...and now...they need our help!! HA! Suck it up. I may have paid 1/3 of a 500k salary in interest alone to these institutions in my lifetime. Let them live on that modest salary. Maybe they''ll have to get a high interest credit card to make ends meet. I''m done. Stick a fork in me. - Reply to this comment
- SHUT UP
I am so sick of you screamy-meemies.
Telling us what we can make?
Who? Where, give me a quote, repeat a phrase, use some skill, for the love of God.
Please, please and oh please ...... learn to read.... MORE... learn to LEARN. - Reply to this comment
- Go ''Bama!!!
The only reason to believe these CEO''s are smarter than everyone else is the fact that stockholders are gullible enough to pay these guys this much. They all happened to be in the right stock market at the right time, no brains involved.
No more. - Reply to this comment
- Strangeworld,
I so totally agree with you about A LOT of the CEO''s ... but, my dear (if I may be so informal)...
There actually are good CEO''s. Please look up "Costco" for an example.
The idea should be how to "breathe in", so to speak. Bring the lowest wages up, create more universal (and... democratic) spending ability and bring the highest wages down to create more capital for investment and growth.
Put it on "Go'' and see it PRINT money.
So, not just about CEO''s... about a system that needs to change.
The criers that are saying our new administration isn''t about change aren''t looking at change that is working correctly. - Reply to this comment
- I''''m glad to see Obama take on the purveyors of modern republican excess and greed.
Posted by Strangeworld at 10:36 PM : Feb 04, 2009
Thank you for pointing that out,.....I forgot there are no rich or greedy Democrats. - Reply to this comment
- Physician, heal thyself! At least one of the US Military Academies pays its football coach more than $500,000 a year: Troy Calhoun, USAFA, $700,000 plus bonuses that could push it over $800,000. That''s more than the Commandant of Cadets, more than a 4 star general, more than the US President!!! Let''s stop the wasteful spending and exorbitant pay right at the source first - within the government.
- Reply to this comment
- Those poor companies that took goverment bailout money will now have to find the best talented leaders/CEO''''s from the bottom of the barrel, because the upper half of them WONT work for 500K per year.
WAY TO RUIN/RUN A BUSINESS OBAMA. Your extensive successful business experience is really showing now.
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Posted by edintex at 08:08 PM : Feb 04, 2009
gimme a break. I''ll take the "bottom" of the barrel "talent" vs. the fatcats at the top who stole my money and continue to do so. Good ole Mort maintains that if we put a cap on the sr. mgmnt they''ll all leave. Wah. All that talent. All of that corrupt theiving talent right out the door. That''s just heartbreaking. You''re an idiot. - Reply to this comment
- "When you''''ve worked as a CEO, or very closely to a CEO, then let''''s talk...until then...you don''''t have any idea what you are talking about."
CEO''s are a dime a dozen...if one leaves or dies, another just as prone to failure takes over. If all the CEO''s in America were do disappear at one time, I doubt that American business would miss a beat...their importance is largely based in their own self-important ego. - Reply to this comment
- Texanna10,
I''d think YOU would know how dumb can go to dumber.... - Reply to this comment
