Bailout Bank Pay Caps Leave Wiggle Room

Experts Say Obama’s Attempt To Rein In Executives May Only Affect Handful Of Top Managers

(CBS/AP)  The squeeze on big paydays for executives of bailed-out banks will probably leave Wall Street plenty of wiggle room.

Consultants on executive pay say the caps imposed by President Obama on Wednesday will probably apply only to a few executives - not star traders, brokers and salespeople who routinely earn whopping pay packages.

Others note Wall Street typically finds ways to exploit loopholes and figure this time will be no different.

“You've got a lot of people on Wall Street who are not executives but still make extremely big salaries,” said Mark Borges, a principal at compensation consulting firm Compensia Inc. “I suspect this doesn't impact them at all.”

The new rules require banks that receive “exceptional assistance” from the government to cap salaries, including cash bonuses, at $500,000 for senior executives.

If those firms wanted to pay their executives more, they would have to use stock that couldn't be sold until the bank had repaid the bailout money. The rules apply only to the future, not to banks that have already received bailout money.

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.

Healthier banks that will receive bailout money technically would also face the $500,000 cap. But they could avoid it by providing full public disclosure and holding a nonbinding shareholder vote.

The White House is trying to stem rising public concern that financial firms are using billions in federal bailout dollars to pay for executive bonuses, corporate junkets and other perks.

“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.”

Click here to read the full transcript of Mr. Obama’s announcement Wednesday, and to see video of a portion of the President’s remarks.

Steve Forbes, CEO of Forbes Inc., told CBS' The Early Show that a better solution would be to make thorough changes of management in some companies and then create long-term incentives for new executives.

"But in politics, there's a rule called the 'golden rule' - he who has the gold makes the rules. Washington is now making the rules," Forbes said.

The true obstacle for struggling financial institutions, according to Forbes, is a cumbersome set of accounting regulations, "which are destroying banks gratuitously. Most of the losses banks have taken have been book losses, not cash losses. This is insane."

But banks taking government assistance will have to cope with the new rules.

"When you get in the hands of the government, just resign yourself - things are going to happen to you you're not going to like ... It's not going to be an ATM where you get the money for free and you go on - you're going to have to pay for it," Forbes said.

However, the salary caps could also have other consequences - sending would-be U.S. bank executives fleeing to foreign firms or hedge funds, or discouraging banks from tapping into the bailout money.

And there are still unanswered questions about the salary caps. For example, the rules do not define what constitutes “exceptional assistance” from the government.

But the rules note that injections of federal cash similar to those given to JPMorgan Chase & Co. and Wells Fargo & Co., which each got $25 billion in bailout money, and many other banks would not necessarily trigger the new salary caps.

By contrast, far more costly emergency bailouts, such as the $100 billion given to American International Group Inc. and the $40 billion given to each Citigroup Inc. and Bank of America Corp., would qualify as “exceptional assistance” and would subject such institutions to pay restrictions.

And the rules don't spell out how many executives would be subject to the cap. Compensation experts predicted anywhere from five to 25 executives per bank could face the new restriction. That would still represent only a tiny fraction of a large firm's brass.

Still, the $500,000 limit will hit some executives in their wallets.

In 2007, Bank of America CEO Ken Lewis received compensation valued at more than $20.4 million, according to a regulatory filing. That included $1.5 million in salary and more than $18 million in bonus, stock and option awards and other benefits.

Executive pay consultants say firms are sure to seek ways to get around the new rules anyway.

That's what happened in 1993, when Congress limited the corporate tax deduction on executive pay to $1 million. That move fed the boom in stock option grants, which weren't subject to the limits.

And the new rules would still allow big restricted stock awards - they'd just postpone the payoff. So executives could still walk away with big money if their firms eventually repaid the government.

“There's plenty of wiggle room,” said David Schmidt, a senior consultant on executive pay at James F. Reda & Associates. “There's no constraints below the senior executive level, so the question becomes, will the restrictions trickle down?"

On the other hand, with public anger growing over corporate excess, some compensation experts doubt Wall Street firms would risk incurring even further wrath by trying to get around the rules.

“They would get eaten alive if they tried to cheat,” said Alan Johnson, managing director of compensation consulting firm Johnson Associates. “No one is going to be that stupid.”

Others worry the salary caps will spark an exodus of star performers just when they're needed to lead ailing firms out of the abyss.

“We've always been a society where extraordinary work led to extraordinary payouts,” said Alexander Cwirko-Godycki, research manager at Equilar Inc., an executive compensation research firm.

For many on Wall Street, the idea of capping pay is “a very foreign concept,” Cwirko-Godycki said.

But will the tougher rules really force Wall Street executives to flee?

Analysts say the most elite bankers could decide to quit, along with key associates, and start boutique firms rather than accept big pay cuts. Others could defect to foreign banks or hedge funds without pay restrictions.

Should they leave bailed-out banks, though, formerly well-paid executives will find the outside opportunities aren't what they used to be.

In years past, “I would see a lot of them walking out the door. Today, I am not sure where they would go,” said Richard V. Smith, senior vice president at Sibson Consulting.

Still, others worry the caps on pay could influence elite-performing Wall Street workers to forgo ambitions of rising to the executive suite.

“It will certainly encourage those performers down below to say 'I don't want a promotion,”' said Patrick McGurn, special counsel at RiskMetrics, a corporate governance advisory firm.

[albertw40]

Sure there are loopholes. And whole thing that is happening with recovery act is meant to swing more money to the rich. If you are unemployed or about to be unemployed, don''t count on the GOP. They are going to leave you swinging in the wind. All they want is huge tax cuts for rich corporations with overpaid CEOs who have already gotten billions in bonuses and golden parachutes.

[ms1-1-11]

This should be the new law...

ZERO bonus for any CEO, COO, CFO,et al., et cet.,

any where U.S.A., no exceptions and by the way let''s begin with the United States Postal Service whoose Post Masters receive free cars, free homes et al., et cet., in fact they should have a new law that states clearly as follows any CEO designation shall not receive bonus unless record sales clearly show massive profits for any given day, month, year this stipulation alone will set back the CEO as it should have been long ago, the employees make the company what it is not CEO pencil pushers.

[tincup356]

Congress and the banks are committing TREASON,,,,,our government has lost it.they don''t care if the people see what they are doing ,,,stealing , evading taxes,massive fraud and corruption........ This mess has an awful smell to it.....the middle class better quit arguing about who did what......THEY BOTH DID IT,,,,,and "We the middle class" are about to be exterminated.....look at the numbers grow,,,of people that have lost jobs, homes , retirements, everything.When Bush yelled we have to act now....the money was stolen,,,,,,,Now Obama is yelling we need to act now,,,,,and if congress does...that money will be stolen....There is no way the stimulus will help the middle class,,,,it will end up much like the money ,,,and Bushes buddies in Iraq ended up with, only this time it will be democratic buddies getting rich.,,,They are both corrupt.....and NEITHER represents the people.

[luvcomments]

If they want a taxpayer-supplied bail-out, these banks, etc., should have to first fire all their top CEOs for ruining the company, the economy, and putting millions of Americans in dire straits. The CEOs were a disgusting failure at their jobs.

[roscoe2400-2009]

Let''s see if Obama and his "uniquely qualified" Secretary of Treasury Tax Cheat can suceed in closing all the loop holes!!!!!

What a joke!!!! Not on your life !!!!!

Just like everyone suspects---- nothing but an empty suit!

[brainteaser2]

Not to worry CEOs your creative accounting department will find ways to conceal all the income you don''t deserve and help you over that persecuted feeling.

[louthesz9]

Here is my point: Does a CEO work 400 times harder and longer hours than I do. NO! I understand why these CEO''''s earn the big bucks but at some point you lose the argument that only this person can do it for this amount of money. You can''''t tell me there is only a select few who have this ability. I think if they don''''t want to do it for 500,000 then get someone else who will. There are plenty of good business minded folks out there who can do the same job for less money.


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Posted by jjorcutt at 04:16 PM : Feb 05, 2009
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Right on. What the CEO does is holding meetings, pushing paper, travelling to some city to attend a function that has no direct relationship to the business. They don''t get down to the nitty-gritty details of the business. I seriously doubt that your CEO has ever had to do the work that an average worker does. He''s like George Bush. He can botch virtually everything under his watch and get away with it.

CEO''s are just lying, cliche-ridden, control freaks that you just wanna shoot in the head if your 401K and the stability of your job are in doubt.

[rsmik]

Salary caps are a joke, the difference will be paid out in any number of extended benefit packages that have nothing to do with payroll.

[louthesz9]

"This is America. We do not disparage wealth. We don''t begrudge anybody for achieving success. And we believe that success should be rewarded. But what gets people upset - and rightfully so - are executives being rewarded for failure. Especially when those rewards are subsidized by U.S. taxpayers," President Barack Obama said Wednesday, standing with his Treasury Secretary, Timothy Geithner.

"We''re taking the air out of the golden parachute," Mr. Obama added.
----------

That''''s what that stupid, smirky idiot George Bush should''''ve declared on Day One.

The executives shouldn''t have gotten the bailout money. They should''ve forgone the bonuses. Every executive should get their salaries cut. Obama is gonna do it and they can''t do it. It''s perfectly legal. If they don''t like it, don''t take the bailout money. That''s OUR MONEY, not theirs.

Stupid Republican crooks!!

[jjorcutt]

Here is my point: Does a CEO work 400 times harder and longer hours than I do. NO! I understand why these CEO''s earn the big bucks but at some point you lose the argument that only this person can do it for this amount of money. You can''t tell me there is only a select few who have this ability. I think if they don''t want to do it for 500,000 then get someone else who will. There are plenty of good business minded folks out there who can do the same job for less money.

[patrik1974]

Spaspy %u2013 people you blame the MSM for anything is as ignorant as the entertainers that spoon feed you this garbage

[lost_america]

Only a little hole is needed for a snake to wiggle through.

But, the 500k thing made for a good warm fuzzy media moment.

I wish it could be true, but, such tales need to be prefaced with "Once upon a time....:

[lost_america]

Remember it''s not about me, its about "we"

and it takes a village to have a village idiot

The democrats want to take my money and give it to the poor, thereby keeping them slaves to entitlements. The republicans want to give it to the rich.

The rich then take it and send it to Bangalore India where apparently there are an abundance of poor people willing to be slaves for them.

So, now with my job gone I am poor, and forced to be a slave.

It seems to me that the plan was to make me a slave no matter who was in charge.

At least with the democrats I get food stamps. I just wonder however, when the entire

middle class is decimated who is going to fund these operations?

[spaspy]

Are all of you people stoopid or what*!*!*!? Don''t any of you realize that it is the mainstream media runs this country? It is they who started our economic downturn with scare tactics (at the expense of our President)and causing widespread panic among consumers to the point that they quit spending money. When that happens, businesses fail. People lose jobs, and thus starts the domino effect. Pure and simple. Oh, I have to add the big oil cartels greed that contributed to the downturn. Period.

[likeitis5050]

In other words: blah blah blah blah blah blah....

[yakerman]

Let%u2019s take the phrase %u201Cabove and beyond customary%u201D from the medical industry and apply it to the tax code. Any pay for any one who is paid above and beyond $500,000 hits a cap on the amount of the labor tax deduction allowed to be taken. Companies can pay there people what ever they want, but any portion above and beyond the $500,000 cap will be paid from post taxed profits. A company not wanting to the pay above and beyond labor taxes can simply hire more people. So pay 20 million dollars to a top executive or hire 80 people and pay them each $250,000 a year, or hire 200 people and pay the $100,000 a year.

Should the American tax payer subsidize top executive pay? If top executives are worth their worth pay then pay them out of the profits not with tax dollar expense accounts.

Let%u2019s use the tax code to put Americans back to work. Trickle down did not work so let us try bubble up to get and keep the economy back on track.

I%u2019m I way off base here?

[ajaxtheleast]

I definitly wouldn''t prohibit retiring execs
from receiving their big cash "rewards.

There would just be a little qualifying
something to go through.

A TV program,,,,a monthly show called
"Fernwick Gets His" where the latest "receiver"
is presented his "going away gift".

The curtain opens and the Receiver crosses the
stage trailing a golden parachute up to the
microphone and cameras to explain why he''s more
valuable than the 20-thaousand-a-year man.

Following the explaination would require
someone tall, maybe Michael Richards, to
approach, look down upon, pat the Receiver
on the head and in a conciliatory tone say
"there, there, we believe you"

The conclusion would have santa handing
out from a wheel barrow the Receiver''s
going away present in one-thousand-dollar
bills and the Receiver, looking directly into
the camera, would be half laughing and half
singing the lyrics especially composed to fit
the song "I Got Mine Now You Get Yours"

[mitch5511]

This is why these corporations need to be reorganized as co-ops if they take bailout money.

[rudy6543]

They need wiggle room to pay the politicians when the next election comes around...



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Posted by Deletedid at 12:17 PM

Hey dipwad, how many times to you plan to spam that same message? I recommend that people start reporting anyone spamming the same message every three seconds.

[rudy6543]

SEEMS TO ME, YOU''''RE ALREADY THERE, SO WHY SHOULD I GO?
Posted by Deletedid at 12:15 PM

Well, I was offering you an alternative if you don''t like my posts. But you could have reasoned it out, right?