CNN White House Correspondent
Here are the new restrictions on executive compensation:
"Under the new rules, companies that have already received Treasury investments will have to demonstrate to the American people that they have complied with the current set of restrictions and reforms on executive pay and lending requirements, and agree to strict monitoring and oversight going forward.
Going forward, companies receiving exceptional assistance from the Treasury will face even stricter rules—including no top executives will be paid more than $500,000 a year - any additional compensation will be in restricted stock that will not vest until taxpayers have been paid back.
All banks will face tougher restrictions, including restrictions on golden parachutes and “say on pay” shareholder policies to give a voice to average investors about salary structures for top executives. All banks will also face tougher transparency rules, including on expenses such as aviation services, office renovations, entertainment and holiday parties, conferences and events, and golden parachutes.
Lastly, as part of President Obama’s efforts to fundamentally reform our financial system, the standards today mark the beginning of a long-term effort to institute a sensible framework for executive compensation that promotes sound risk management and long-term growth while preventing such financial crises from happening again.
Companies Receiving Exceptional Financial Recovery Assistance: (targeted bank-specific relief that’s not part of a widely available program – i.e. AIG/Citi)
Financial Institutions Participating in Generally Available Capital Access Programs: (such as the Capital Purchase Program, which was designed to stabilize the financial system by directly infusing capital into healthy, viable institutions, increasing the flow of financing available to small businesses and consumers and supporting the economy. With additional capital, banks are better able to meet the lending needs of their customers, and businesses have greater access to the credit that they need to keep operating and growing. Since its inception in October 2008, Treasury has strengthened healthy small and large, regional, and national, financial institutions, as well as Community Development Financial Institutions (CDFIs), through total CPP investments of $195.33 billion in 359 institutions in 45 states and Puerto Rico. To date, the largest investment was $25 billion and the smallest investment was approximately $1 million.Treasury designed the CPP with important features to protect taxpayer dollars and provide positive return on investments- each CPP investment in senior preferred shares yields a 5 percent dividend for 5 years, which then increases to 9 percent. Treasury has already started receiving required dividend payments on these investments.)
Long-term regulatory reform: Compensation strategies aligned with proper risk managmenet and long term value and growth.
Even as we work to recover from current market events, it is not too early to begin a serious effort to both examine how company-wide compensation strategies – not just those related to top executives - may have encouraged excessive risk-taking that contributed to current market events and to begin developing model compensation policies for the future. Such steps should include:
Requiring all Compensation Committees of Public Financial Institutions to Review and Disclose Strategies for Aligning Compensation with Sound Risk-Management: The Secretary of the Treasury and the Chairman of the SEC should work together to require compensation committees of all public financial institutions – not just those receiving government assistance – to review and disclose executive and certain employee compensation arrangements and explain how these compensation arrangements are consistent with promoting sound risk management and long-term value creation for their companies and their shareholders.
Compensation of Top Executives Should Include Incentives that Encourage Long-term Perspective: Over the last decade there has been an emerging consensus that top executives should receive compensation that encourages more of a long-term perspective on creating economic value for their shareholders and the economy at large. One idea worthy of serious consideration is requiring top executives at financial institutions to hold stock for several years after it is awarded before it can be cashed-out as this would encourage a more long-term focus on the economic interests of the firm.
Pass Say on Pay Shareholder Resolutions on Executive Compensation: Even beyond companies receiving financial recovery assistance, owners of financial institutions – the shareholders – should have a non-binding resolution on both the levels of executive compensation as well as how the structure of compensation incentives help promote risk management and long-term value creation for the firm and the economy as a whole.
White House Treasury Conference on Long-Term Executive Pay Reform: The Secretary of the Treasury will host a conference with shareholder advocates, major public pension and institutional investor leaders, policy-makers, executives, academics, and others on executive pay reform at financial institutions. Treasury will seek testimony, comment, and white papers on model executive pay initiatives in the cause of establishing best practices and guidelines on executive compensation arrangements for financial institutions."