CHICAGO – President Barack Obama's economic team tried to keep Democratic allies negotiating the stimulus bill from limiting paychecks for executives at banks in need of a bailout. Treasury Secretary Timothy Geithner and economic aide Lawrence Summers failed.
Sen. Christopher Dodd, chairman of the Senate Banking, Housing and Urban Affairs Committee, inserted strict rules into the $787 billion economic stimulus package over the White House's objections. Dodd's limits on bankers' bonuses are significantly more aggressive than those sought by Obama or Geithner in recent days, with much fanfare.
Dodd, D-Conn., said the restrictions — an executive making $1 million a year in salary could receive only $500,000 in bonus money, for example — are necessary if Obama plans to ask Congress for more money to save the financial sector.
"It will never happen as long as the public perceives that there are people getting rich," Dodd said in an interview. "Save their pay or save capitalism."
That tone among Democrats flavored much of the discussion about how to write the stimulus bill, which the president could sign as early as Monday. Despite direct appeals from Geithner, Summers and White House officials, Democrats didn't budge, according to administration officials.
The Obama administration's proposed restrictions applied only to banks that receive "exceptional assistance" from the government. It set a $500,000 cap on pay for top executives and limited bonuses or additional compensation to restricted stock that could only be claimed after the firm had paid the government back.
The stimulus bill, however, sets executive bonus limits on all banks that receive infusions from the government's $700 billion financial rescue fund. The number of executives affected depends on the amount of government assistance they receive. But as a rule, top executives will be prohibited from getting bonuses or incentives except as restricted stock that vests only after bailout funds are repaid and that is no greater than one-third of the executive's annual compensation.
The prohibition would not apply to bonuses that are spelled out in an executive's contract signed before Feb. 11, 2009.
At banks that received $25 million or less, the bonus restriction would apply only to the highest paid executives. At banks that receive $500 million or more, all senior executives and at least 20 of the next most highly compensated employees would fall under the bonus limits.
The final bill was far stricter than the White House wanted, administration officials said.
"As he has already expressed, the president shares a deep concern about excessive executive compensation at financial firms that are receiving extraordinary assistance from American taxpayers," spokeswoman Jen Psaki said Saturday. "He looks forward to working with Congress to responsibly address this issue." She said administration officials "contacted members of Congress with suggested technical changes toward that end."
Negotiators had removed a $400,000 pay cap included in an earlier draft. The Congressional Budget Office said it would cost some $11 billion in lost tax revenues by 2019.
Wall Street executives typically earn relatively small salaries but gigantic bonuses.
Dodd said that even though the salary cap had been removed from the final bill, he was still hearing objections from major financial institutions.
"I just find it incredible that people are calling up and bellowing about this," he said on the Senate floor. "We're in the deepest economic crisis in the lifetime of any living American and they're worried about their pay."