February 4th, 2009
09:12 AM ET

White House new restrictions on executive compensation

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Suzanne Malveaux
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)

  • Limit Senior Executives to $500,000 in Total Annual Compensation – Other than Restricted Stock: Current programs providing exceptional assistance to financial institutions forbid recipients of government funds from taking a tax deduction for senior executive compensation above $500,000. Today’s guidance takes this restriction further by limiting the total amount of compensation to no more than $500,000 for these senior executives except for restricted stock awards.
  • Any Additional Pay for Senior Executives Must Be in Restricted Stock that Vests When the Government Is Being Repaid with Interest. Any pay to a senior executive of a company receiving exceptional assistance beyond $500,000 must be made in restricted stock or other similar long-term incentive arrangements. The senior executive will only be able to cash in such restricted stock either after the government has been repaid – including the contractual dividend payments that ensure taxpayers are compensated for the time value of their money – or after a specified period according to conditions that consider among other factors the degree a company has satisfied its repayment obligations as well as lending and stability goals. Such a restricted stock strategy will help assure that senior executives of companies receiving exceptional assistance have incentives aligned with both the long-term interests of shareholders as well as minimizing the costs to taxpayers.
  • Executive Compensation Structure and Strategy Must Be Fully Disclosed and Subject to a “Say on Pay” Shareholder Resolution: The Senior executive compensation structure and the rationale for how compensation is tied to sound risk management must be submitted to a non-binding shareholder resolution.

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.)

  • Limit Senior Executives to $500,000 in Total Annual Compensation Plus Restricted Stock – Unless Waived with Full Public Disclosure and Shareholder Vote: Companies that participate in generally available capital access programs may waive the $500,000 plus restricted stock rule only by disclosure of their compensation and if requested, a non-binding “say on pay” shareholder resolution. All firms participating in a future capital access program must review and disclose the reasons that compensation arrangements of both the senior executives and other employees do not encourage excessive and unnecessary risk taking. Under the current Capital Purchase Program, the companies were only required to review and certify that the top five executives’ compensation arrangements did not encourage excessive and unnecessary risk-taking.

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."

Filed under: Bailout Turmoil • Raw Politics • Suzanne Malveaux
soundoff (30 Responses)
  1. Greg

    If a company accepts bailout money from the government, then they should be treated as someone on welfare. There are restrictions to what welfare recipients can spend their money on, this should be no different. In fact, it should be regulated 1000% more. So demanding executives who have been been making $10-70 million a year to accept a 1/2 million dollar salary until they repay the loan is more than reasonable.
    Obama is keeping his word, in that everyone will have to make sacrifices, especailly the executives who are responsible for their companies situation in the first place. If I performed poorly at my job, I'd lose it, not get a bonus!

    February 5, 2009 at 5:26 am |
  2. Margaret

    Those holier than thou Republicans are quick to blame President Obama for this mess. How quickly they forget that it was the Republicans who were behind the wheel driving with their eyes closed for the past 8 years?

    February 5, 2009 at 2:24 am |
  3. Margaret

    Thank you Mr. President!!! It's about time someone takes those greedy CEOs to task! The obscene salaries and bonuses ...not to mention all the perks they get... are prime examples of why we are not geting out of this mess!

    What is with you AC? You're so sarcastic towards our new President??

    February 5, 2009 at 2:13 am |
  4. D

    We just paid millions in bonus money for failure. Where on earth does this happen?

    February 5, 2009 at 2:13 am |
  5. Lyn Collina

    I work for corporate america. We have a CEO and a plant manager in our plant and we have not had to depend on government handouts. I still think that capitolism is the way to go even though I only make 17.86 an hour. I am too poor to be a Republican but I am. I DO BELIEVE THAT NONE OF THESE COMPANIES SHOULD HAVE RECIEVED OUR HARD EARNED TAX DOLLARS AND THEY SHOULD ALL HAVE FILED BANKRUPTCY INSTEAD OF GOING ON WELFARE! IS NOT WELFARE WHEN THE GOVERNMENT GIVES YOU MONEY AND FOOD STAMPS? HOW CAN SOMEONE BE ALLOWED TO GET WELFARE WHILE THEY ARE GETTING MILLIONS IN SALARIES AND BONUSES? PLEASE EXPAIN THIS TO ME! Someone at work explained it to me by telling me a joke. What is the difference between a lawyer and a rat? There are just some things a rat won't do!!!

    February 5, 2009 at 1:31 am |
  6. Vasco

    Most CEOs are shamefully greedy and WS condones it.
    How many people are aware that after Sep11 the ATSB distributed $Bils of taxpayer's money to the airlines, with no strings attached whatsoever.
    Most CEOs, in a show of goodwill, gave up their salaries for the last Q of 2001, but took the bonuses even after posting heavy losses. That was taxpayer's money gone in their pockets, while tens of thousands of airline workers lost their jobs. Shame on them and shame on us as a Nation for letting this happen again! This has to stop!

    February 5, 2009 at 12:02 am |
  7. Ethics

    How many people are getting laid off so companies can keep their season tickets to sporting events?

    Corporations spend millions on this boondoggle !

    February 4, 2009 at 11:42 pm |
  8. Armeen I

    I am quite amused by the many comments I have heard from people warning us that government should not get involved in assigning bonuses and salary caps as it is against our capitalist way of life. Let me give you a down home example that may clarify something:

    My 21 year old daughter says the best thing about working is that she doesn't have to ask me for any money. Because with mom's money also came mom's "mouth".

    So, if the wall street folks don't want the government's involvement, then they shouldn't have had their hand out for the bail out monies.

    February 4, 2009 at 11:25 pm |
  9. Bob Kuz

    The limits on executive can not be seen as restrictive. Didn't all this TALENT create the mess that exists now? How can these financial wizards get involved in instruments that nobody clearly understood and a mortgage program that they should have known had to fail. If they were that smart their specific company wouldn't be on the brink of collapse. So clearly they are not worth the cash.

    February 4, 2009 at 11:19 pm |
  10. John Rogers

    Great idea!!!!!

    February 4, 2009 at 11:15 pm |
  11. VJ

    CEO and other executive salaries should be capped and smacked down
    Am proud of and support the decision

    February 4, 2009 at 11:13 pm |
  12. John

    Lets limit the compensation of Movie Stars and TV news anchors too.
    While we are at it, lets limit the amount that parents can leave to their children also. eh Anderson? and the amount that Politicians can make from book deals.
    While we are limiting the use of corporate airplanes, lets also limit the use of Air Force one- what's good for the goose is good for the gander. Obama can swim to Hawaii.

    How to avoid the Compensation Limit.:
    Assign all the Govt money to a single company (most conglomerates have 10s or 100s). Assign a high school graduate to run it.
    Assign the highly paid CEO to the other hundreds of companies, and then thumb your nose at the US Govt and their communistic policies.

    February 4, 2009 at 10:52 pm |
  13. Denise Michaels

    I heard the news on the radio while driving home from a business meeting. I cheered! I pumped my fist and jumped up and down in the seat of my 3.5 year old Ford. After all, if you're going to take money from the Feds (a luxury not offered to small business owners as of yet) you better live within their rules – and they should be appropriately spartan.

    I'm a small business owner and wanton spending we've witnessed again and again on Wall Street and their non-performing execs is disgraceful. It results in average Americans – people like me feeling frustrated and sighing with exasperation, "Why the heck do I even bother to work so hard?"

    February 4, 2009 at 10:52 pm |
  14. Jim Cannon

    Mr. Cooper:

    There is a provision in the Internal Revenue Code that expenditures be ordinary, necessary, and reasonable. It is a simple matter for an IRS auditor to disallow these outrageous deductions. Once upon a time when I was a junior CPA I tried to deny the depreciation on a Rolls-Royce but the managing partner overrode my objection. It just take backbone.

    February 4, 2009 at 10:50 pm |
  15. Tom in Arizona

    I think the new limits are absolutely the right thing to do. We'll have to see if they go far enough. Why is it that teachers, social workers, police, military, and other service workers are expected to work for very little due to their commitment, while executives require millions of dollars? Our businesses are essential to a good life for all, so let's draw on some executives motivated by the good of the country instead of their greed for personal wealth. And if these high-paid execs are so good, how did their businesses get in this condition to begin with? Obama has called the American people to service. Let's see some good examples from the senior execs.

    February 4, 2009 at 10:25 pm |
  16. Anne Wilson

    As a shareholder of a number of corporations, I am delighted to hear about President Obama's limit on executive compensation. I am outraged that shareholders have little or no say about what these executives make and the errors they make while collecting these salaries. I fully support limiting compensation. After all, how much can one individual possible be worth no matter how valuable to the company. And the sad part is that most of them have made serious errors while collecting this excessive compensation.

    February 4, 2009 at 10:15 pm |
  17. LarryHouston

    Everyone needs to realize exactly what 18.4 billion dollars in Wall Street bonuses for 2008 really means......If 18,000 people received bonuses, it averages out to 1 million dollars each....If you could find 180,000 Wall Streeters, they'd each get 100,000 dollars. To say I'm outraged doesn't come close. If this doesn't count as defrauding investors I don't know what does.

    February 4, 2009 at 9:48 pm |
  18. Thembi Cincinnati

    The system of greed that put these executives firmly in place has blinded them from any sense of reality. It may take years for them to digest President Obama’s dose of reality. The sooner all businesses take note, change their outlandish and selfish habits, and value the whole over the sum of the parts, the faster we will dig ourselves out of this recession that is really a depression.

    February 4, 2009 at 9:31 pm |
  19. TDA

    CNN and the rest of the pundits are right, of course, to be indignant about AIG, the banks, and others taking the bailout while continuing their lavish ways. They must be compelled to restrain themselves and share the pain the rest of us are experiencing. But, given that we've collectively invested in their future through the bailout, surely we all want them to succeed and return to stability and profitability. How can we expect them to accomplish this without our help and understanding? I'm prepared to keep trusting and banking with these institutions as my contribution. What is CNN prepared to do? How about foregoing or reducing your advertising fees so these companies can continue to tout their worthiness and services? They need this help to get through these tough times. And how about CNN's well-compensated anchors, reporters, producers, etc., foregoing some of their compensation to help offset the lost advertising revenues so CNN's bottom line won't suffer? Wouldn't that be fair and just to all? Let the rest of us know when you're on board. (Trouble is, you'll eventually go down with the rest of us because you have no more sense than to believe and promote the concept that we can help a fat man diet by subsidizing his grocery bill.)

    February 4, 2009 at 8:51 pm |
  20. Ben Blasdell

    the concept that "we need to pay the highest to get the best" is ludicris

    thest guys are obviously not the best

    February 4, 2009 at 8:16 pm |
  21. Carlos

    It's absolutely amazing how the financial/auto society cried for the freedoms of unaccountable de-regulation. And when their greed has caught up with them, then the federal gov is not just asked but expected to assist. Now the federal gov has agreed to assist and with necessary conditions placed on that assistance. And rightfully so! Correct me if I'm wrong but I don't think the current admin. is requesting every senior business executive out there to be content with a salary/bonuses cap of 500,000. There are and will continue to be other companies whose executives salaries will exceed the present salaries of those who have requested the federal gov. to provided them with taxpayer dollars for self inflicted wounds. The origins/foundations of the major financial institutions on Wall St. have a extensive history of corruption and greed. If more people knew to what extent these established institutions of finance have rewarded themselves with "ill-gotten gains" , then the term "financial meltdown" shouldn't come as a surprise to many. That Bible that Lincoln and Obama swore on says that they will be critical times hard to deal with for people around the world. The financial and economical meltdown we are experiencing is just one of many testaments to the fact that man has dominated over man to his own injury.

    February 4, 2009 at 3:22 pm |
  22. Bob

    Good start, but no where near enough.....

    Forget a cap or additional pay limits......there should be an immediate FREEZE on all wages across the board at the companies asking for bailouts. In fact, there should have been a freeze months before looking for a handout when the company started tanking. Companies that want a handout need to open their books and any recent bonuses (for a company about to go bankrupt) needs to be returned before giving away the tax dollars we all pay.

    February 4, 2009 at 2:55 pm |
  23. Steve

    Money does not grow on trees as they say but many wall street firms, banking institutions, and insurance firms never got that memo.

    These Companies receive taxpayer funds to compensate high level executives that could not balance their own checkbook much less a P&L statement.

    Federal Law should prohibit any executive from receiving bonuses up and above their fixed salary until taxpayer funds are repaid period. If an executive cannot run a profitable business to repay the debt, he should be fired without the golden parachute.

    If successful, bonuses should be paid from seperate private escrow accounts so as not to be comingled with taxpayer funds. Bonuses should be a fixed amount until all taxpayer funded loans are repaid in full.

    President Obama should make it a requirement that any Private Corporation seeking /acquiring bailout funds in excess of 1B dollars must have a federal regulator sit on the board of directors and information relating to the use of taxpayer funds be broken down per Company and disclosed on the recovery.gov website.

    Any bonuses paid to Executives through taxpayer funds is nothing short of a crime and should be prosecuted to the full extent of the law. Full Disclosure is paramount for the stimulus plan to work.

    February 4, 2009 at 1:52 pm |
  24. JC- Los Angeles

    While curbing the egregious compensation of worthless executives is long overdue, it always seems that our troubles are addressed post facto.

    It's as if no one has any vision or foresight; select appropriate nominees? nah? pay taxes? nah; do a good job distributing the $700 billion? nah? put together a decent stimulus package? nah? curb mortgage fraud? nah; avoid lobbyists? nah.

    I'm hopeful that President Obama will now curb book advances for the likes of himself and Alan Greenspan; now that would an accomplishment.

    February 4, 2009 at 1:47 pm |
  25. Doug Ramsey

    I think we should have pay compensation limits on everybody and they should be $100,000 a year. No body needs more than $100,000 to live on and everything more should be confiscated by the government and used to solve some of the serious problems facing this country, like hungry children and global warming.

    I think the government should just take over the financial systems so that they can be run more efficiently with oversight and accountability like the government. And if the loans become insolvent they can just print more money or sell Treasuries to cover the difference so that we don't have any credit crunch.

    February 4, 2009 at 1:31 pm |
  26. Antonio

    I think it's about time executives have a small dose of "reality". I only wish $500,000 was a reality check for me. However, I write because I want to rewrite a letter to the editor of the New York Times I read in the February 2nd edition. With all reports justifying the excessive bonuses and perks of wall street executives, most claiming they would lose employees unless providing said incentives, I read with great admiration the following opinion of Kenneth Crystal of Roslyn Heights, N. Y.

    "I, too, have a job with "days on end of working into the wee hours, the months on end without a single day off, the never-ending 'fire-drills' - when a client wanted something and wanted it now, whether it was 7 p.m. or 7 a.m. - that kept the stress and adrenaline levels high."
    My clients, however, are called patients. My abnormal hours are termed 'call.' I receive no bonus, only missives from contentious insurance companies.
    In my occupation, stress levels also run high. There are no 22-year-old analyst bonus babies in my field, only people with an average of 13 years of post-graduate education and tens, if not hundreds, of thousands of dollars of educational debt.
    I am what is called a physician."

    I simply thought this was well said and appropriate to the discussion. If anyone deserves extraordinary pay, and in many cases physicians do, I think it should be the selfless, not the selfish.

    February 4, 2009 at 12:18 pm |
  27. VG

    I welcome the concept of cap on executive compensation. Afterall these corporations are borrowing money from tax payers how can they even think about using it to reward themselves for bad job done! I understand government interference in private sector is frowned upon by some, but come on, when you ask the government to help you – are you really a private concern anymore and not accountable to the public! Please such people need a serious reality check.

    February 4, 2009 at 11:38 am |
  28. Michael "C" Lorton, Virginia

    Obama has set the stage on greed and corruption for institutions accepting the bail-out--but I'm sure that if there is a venue around the restrictions---these individuals will find it–because these individuals believe that Greed is all right, and greed is healthy- They can be greedy and still feel good about themselves.

    February 4, 2009 at 11:36 am |
  29. Sharon

    Dear Mr President:

    This is to say thank you for uniting the world if only for a few weeks.
    Watching people connecting with each other and been so hopeful together makes my heart feels good. I am very proud of you.
    Always remember the people who gave you this opportunity. Do not let the Republicans or the Democratic dissuaded you from your goals of helping the people who are most in need of you help. Never forget the little people.
    Now show the people what you are made of. Be strong and don't be a push-over. I wish you success, prosperity and happiness. God bless and be good.

    February 4, 2009 at 11:12 am |
  30. amy toro

    President Obama's limits are in the right direction. However, the bank and companies that are given bailout money need a trustee or several trustees in place to function as a bankrupcy trustee for the government. Basically, the governmentis preventing a formal bankrupcy. We need to have the companies pay for the government's trustee as part as their payroll.
    If they knew how to run a company with a profit and balance a check book, the trustee.
    Or maybe the President should replace the excutives how did not do their job well. Give the jobs to the youth of America who need the company to stay in business and would be happy with a lot less pay.
    Why bother dealing with excutives who are constantly looking to 'beat the system' for money their self-gratification.

    February 4, 2009 at 10:51 am |