CEO pay takes a hit in bailout plan
— -- The draft of the government's controversial $700 billion financial rescue plan released Sunday makes it clear that CEOs of firms seeking the bailout are about to have their pay packages capped.
The proposal seeks to rein in compensation at participating companies by limiting their tax deduction on executive salaries exceeding $500,000. It allows officials to recover bonuses that have been paid out based on financial statements that later prove to be inaccurate. And it bans exit-pay packages, or golden parachutes, at those companies.
The provisions may be some of the easier for politicians to agree on. They already appear to have support from some CEOs and taxpayers. A recent USA TODAY/Gallup survey of 1,019 people found that 63% think setting limits on executive compensation at companies that participate in the bailout is very important.
Golden parachutes typically pay ousted CEOs three times annual pay, bonuses and pensions and often include perks lasting well into retirement. They've long been a sore point for investors at underperforming companies, where many exiting executives have shared little of their pain.
Parachutes have been particularly gilded at the same financial firms that are now struggling. Merrill Lynch CEO Stanley O'Neal left in 2007 with an exit package valued at $161 million. Washington Mutual CEO Kerry Killinger's golden parachute is valued at $44 million, while Citigroup CEO Charles Prince left last year with $105 million in compensation, says compensation consultant James Reda.
It's highly unlikely that lawmakers will try to extend curbs on financial CEO compensation to other industries. "Congress should nudge the free market, not bludgeon it," Reda says.
Current regulations and industry guidelines on executive pay are complex and don't need meddling from Congress, says Frank Glassner, CEO of Compensation Design Group, a pay consultant. Moreover, the last time Congress tried to limit executive pay, it resulted in 1993 tax-code changes that capped corporate deductions for executive salaries over $1 million. But corporate boards found new ways to lavish executives with stock-based compensation and perks ranging from private use of corporate aircraft to financial advice and country club memberships. Coupled with rising stock prices, CEO pay packages soared.
Related Stories
ABC News Live