The high life for bank CEOs has officially ended. Tuesday, President Obama is expected to sign the economic stimulus bill, which could place a $500,000 limit on salaries and tight caps on how much in bonuses executives can earn if they take in government money.
These tighter provisions were thrown in at the last minute by Sen. Chris Dodd, D-Conn., who was responding to the anger across America over how taxpayers' money was being used in the bank bailout.
"These tough new rules will help ensure that taxpayer dollars no longer effectively subsidize lavish Wall Street bonuses," Dodd said in a statement.
However, it has become clear that if implemented, these measures will lead to some of the most drastic changes in CEO compensation in the financial industry. It's no secret that CEOs at the top banks with over $100 billion in assets already get millions in compensation.
But CEOs at even midtier and much smaller banks are paid far more than the $500,000 limit set by the White House, or the bonus cap of one-third of total compensation set by the new amendment. For instance, M&T Bank mtb has assets of $65 billion and has received $600 million from the U.S. Treasury. CEO Robert Wilmers' compensation in 2007 totaled $1.15 million, which included a salary of $646,154 with the rest coming from bonuses and other items such as pension benefits.
Dodd's amendment also bans golden parachutes for departing executives. But these have become common. Old National Bancorp CEO Robert Jones, for instance, was paid $1.5 million in 2007 but will get up to $6 million if his job is terminated.
Old National onb is a tiny bank with $8 billion in assets, compared with the large trillion-dollar banks. But the Indiana bank has taken in $100 million of taxpayer money, and at least four other executives have also negotiated handsome payouts if they leave.
Dodd calls for the tighter limits to be applied to the 359 institutions that have already received government aid, which could be a gargantuan task.
Compensation experts say these executives have gotten used to a different pay structure and the new limits will keep them from going to the government for more aid.
"Managers out for their own self-interest will want to avoid the government protection that could save the enterprise, which could make the financial system more unstable," says Jeffrey Sonnenfeld, senior associate dean at the Yale School of Management.
Still, bank CEOs are fast adjusting to reality in other ways. Recently, Wells Fargo canceled a Las Vegas jamboree to reward its top employees, as did U.S. Bancorp for one in Naples, Fla.
Contributing: Matt Krantz