Obama Limits Bank Executive Compensation in Government Bailout

U.S. President Barack Obama on Wednesday called the bonus payments at banks receiving government financial assistance shameful, announcing alongside Treasury Secretary Timothy Geithner government measures that limit future compensation for top executives of financial firms receiving such aid to $500,000 per year.

"To restore our financial system, we must restore trust. And to restore trust, we must prevent taxpayer money from subsidizing excessive compensation on Wall Street," Obama said at the White House, unveiling new rules for companies seeking extraordinary assistance from the Treasury Department. Geithner stated that the economic crisis has worsened due to a loss of confidence in the judgments of business leaders."There is a strong feeling across the country that those who are not responsible for the crisis are bearing a greater burden than those who are," Geithner said, announcing that he would present a comprehensive program for the recovery of the financial system next week.

Obama also urged Congress to complete the economic stimulus legislation, stating that delays would "turn the crisis into a catastrophe and cause a longer-lasting recession." Responding to public outrage over the $18.4 billion in bonuses paid to bankers who received government assistance, as well as moves such as Citigroup’s order for a corporate jet and organizing retreats for top executives of Wells Fargo at casinos in Las Vegas, the administration has mandated conditions for transparency in costs and limited severance payments to board members.

While their salaries will be capped, top executives will be allowed to receive compensation in restricted stock, which they can only sell once they repay the government with interest, and even then with shareholder approval. Companies will also have to adopt a provision allowing for the clawback of bonuses or incentives from the top 25 executives if it is determined they participated in any fraud. Public outrage has been growing since October when Congress approved a $700 billion plan to rescue the financial system, known as the TARP program.

Lawmakers have complained that the first half of that amount was spent with very limited public oversight and with questionable effects in addressing the financial and credit crisis. A report from the New York State Comptroller that $18.4 billion in bonuses were paid to managers and other employees on Wall Street last year while the U.S. sinks deeper into recession has infuriated Americans. Democratic Senator Claire McCaskill, who last week called bankers rewarded with bonuses for causing the crisis "idiots," proposed that annual compensation on Wall Street be capped at $400,000, which is the salary of the U.S. President.

McCaskill assessed on Wednesday that Obama’s plan aligns with efforts to change the "arrogant, greedy culture that first created this mess." The five largest investment banks on Wall Street before the crisis – Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers, and Bear Stearns – rewarded their employees with a total of about $145 billion in bonuses from 2003 to 2007, according to estimates based on their reports. (H)