Obama Looks to Cut Executive Bonuses

June 10, 2009— -- Three months ago insurance giant AIG, the recipient of around $180 billion in taxpayer aid, incited a national uproar when it dished out $165 million in bonuses. Now the Obama administration is poised to take action to curb executive compensation.

On Wednesday Treasury Secretary Tim Geithner met in Washington with Securities and Exchange Commission chief Mary Schapiro, Federal Reserve Governor Dan Tarullo, and the Ken Feinberg, the new special master better known as the "pay czar."

Two issues are at play here: regulations implementing controls over bailout recipients and broad proposals that would apply to top executives at companies in the financial sector.

"This financial crisis had many significant causes, but executive compensation practices were a contributing factor," Geithner told reporters.

"In considering thse reforms, we start with a set of broad-based principles that - with the help of experts like those we assembled today - we expect to evolve over time. By outlining these principles now, we begin the process of bringing compensation practices more tightly in line with the interests of shareholders and reinforcing the stability of firms and the financial system," he said.

The former is tied to legislation initiated by Sen. Christopher Dodd, D-Conn., last winter. As an amendment to President Obama's stimulus bill, the chairman of the Senate Banking Committee capped bonuses for executives at companies receiving funds from the $700 billion Troubled Asset Relief Program.

One new step to address payments at TARP beneficiaries will be the appointment of a so-called "pay czar," set to be Kenneth Feinberg, who oversaw compensation for the victims of the 9/11 attacks, a source familiar with the plan told ABC News. An announcement on these bailout regulations could come later this week.

Meanwhile, the broader compensation reform proposals are expected to be unveiled Wednesday. The presence at the meeting of Schapiro and Tarullo is notable because the SEC and the Fed may gain greater power to address compensation issues.

On Tuesday, testifying before the Senate Appropriations Committee, Geithner spoke about the need to make changes to compensation practices.

"Although many things caused this crisis, what happened to compensation and the incentives that created for risk-taking did contribute in some institutions to the kind of vulnerability we saw in this financial crisis," he told lawmakers. "And my view is that we need to help encourage substantial reforms and compensation structures, particularly in the financial industry, because of the dependence of the economy on a well functioning, more stable, better set of judgments by financial institutions."