WASHINGTON – The Obama administration plans to limit pay to $500,000 a year for executives of government-assisted financial institutions in a new get-tough approach to bankers and Wall Street, a senior administration official said Tuesday.
Obama plans to announce the new limits Wednesday at the White House with Treasury Secretary Timothy Geithner.
"If the taxpayers are helping you, then you've got certain responsibilities to not be living high on the hog," President Barack Obama said in an interview with "NBC Nightly News".
An administration official familiar with the new restrictions said they would apply only to struggling large firms that receive "exceptional assistance" in the future. They would not apply to healthy banks that receive government infusions of capital.
The official, speaking on the condition of anonymity because the plan had not yet been made public, said that firms that want to pay executives above the $500,000 threshold would have to compensate them with stock that could not be sold or liquidated until they pay back the government funds.
The president and members of Congress have been weighing various proposals to restrict chief executives' compensation as one of the conditions of receiving help under the $700 billion financial bailout fund.
Top officials at companies that have received money from the government's Troubled Asset Relief Program already face some compensation limits. But elected officials want to place more caps, a sentiment reinforced in recent days by revelations that Wall Street firms paid more than $18 billion in bonuses in the midst of the economic downturn in 2008.
"I do know this: We can't just say, 'Please, please,"' said Sen. Claire McCaskill, D-Mo., who has proposed that no employee of an institution that receives money under the $700 billion federal bailout can receive more than $400,000 in total compensation until it pays the money back.
The figure is equivalent to the salary of the president of the United States.
On Tuesday, Sen. Byron Dorgan, D-N.D., introduced amendments to the Senate's economic stimulus legislation that would require firms that receive bailout funds to disclose the bonuses they paid during the time they received government funds. The bonuses would be posted on the Internet and included in a report to Congress.
Compensation experts in the private sector have warned that such an intrusion into the internal decisions of financial institutions could discourage participation in the rescue program and slow down the financial sector's recovery. They also argue that it could set a precedent for government regulation that undermined performance-based pay.
"I really don't want the government to take over these businesses and start telling them everything about what they can do," Sen. Mitch McConnell of Kentucky, the Republican leader, said this week. "Then you truly have nationalized the business."
Obama, in an interview with CNN Tuesday, stressed that the restrictions would not amount to excessive government intrusion.
"There are mechanisms in place to make sure that institutions that are taking taxpayer money are not using that money for excessive executive compensation," he said. "It's not a government takeover. Private enterprise will still be taking place. But people will be accountable and responsible. And that's what we have to restore in the financial system generally."
And some Republicans, angered by company decisions to pay bonuses and buy airplanes, have few qualms about restrictions, especially if they are temporary.
"In ordinary situations where the taxpayers money is not involved, we shouldn't set executive pay," said Sen. Richard Shelby of Alabama, the top Republican in the Senate Banking Committee.
"But where you've got federal money involved, taxpayers' money involved, TARP money involved, and the way they have spent it, with no accountability, is getting close to being criminal."
The administration's compensation announcement will precede its more comprehensive plans for how to spend the remaining $350 billion in the TARP program. Treasury Secretary Timothy Geithner and Obama's economic team have been revamping the framework of the program and are expected to announce the changes next week.
Officials are considering a government-run "bad bank" that would take on the bad debts and investments of financial institutions. In addition, the Treasury could seek help from the Federal Reserve and the Federal Deposit Insurance Corp. to provide banks with guarantees against losses on assets backed by residential and commercial real estate loans.
On Tuesday Sen. Charles Schumer, D-N.Y., a member of the Senate banking committee with close ties to Wall Street, warned against the "bad bank" idea saying it could be too expensive and the government would have a difficult time setting a value on the assets. He instead endorsed guaranteeing bad assets at a value lower than what banks have on the books.