A House panel voted Thursday to prohibit financial firms from offering corporate pay packages that encourage executives to take big risks, going further than what President Obama wanted to curb excessive salaries and bonuses on Wall Street.
Lawmakers, including Republicans who opposed the proposal because they said it went too far, said they were under tremendous pressure from constituents.
"Politically, it was very difficult for my members to stand up and fight this legislation," said Rep. Spencer Bachus of Alabama, the top Republican on the House Financial Services Committee.
The committee's 40-28 vote paves the way for a vote by the full House on Friday. Aware of its populist appeal, Democratic leaders left the legislation as one of their final acts before breaking for a month-long recess.
Four months ago the House tried to claw back $165 million in bonuses that American International Group paid its employees after accepting more than $180 billion in federal aid.
While the initiative lost momentum after Obama warned against vilifying Wall Street, the fires were stoked again this week with reports of a top Citigroup trader pressing the troubled bank to make good on its promise to pay him $100 million.
Rep. Barney Frank, chairman of the House Financial Services Committee, said the system of hefty bonuses doesn't make sense.
"You get hired for this very prestigious job and you get a salary, and now we have to give you extra money for you to do your job right?" asked Frank, D-Mass.
Obama's approach would attempt to rein in excessive pay by giving shareholders a nonbinding vote on compensation packages and diminishing management's influence on pay decisions. Under his plan, members of compensation committees could not have financial relationships with the company and its executives.
Obama has appointed Kenneth Feinberg, a lawyer who oversaw payments to families of victims of the Sept. 11, 2001, terrorist attacks, to oversee compensation at firms that have accepted large federal bailouts. Feinberg has the power to reject pay plans he deems excessive.
The committee embraced the administration's legislative proposal giving shareholders "say on pay" and independent compensation committees. But Frank added a provision to the bill that would require all financial companies to disclose to federal regulators the details of any "incentive-based" compensation package.
Frank's bill includes an outright ban on compensation that encourages an executive to take risks that could threaten the economy or the viability of the institution.
Republicans on the panel, including Texas Reps. Randy Neugebauer and Jeb Hensarling and Georgia Rep. Tom Price, said unelected bureaucrats shouldn't get to decide how much money executives make.
Bachus said he was "as outraged as everyone else" but that the legislation shouldn't pass without closer scrutiny. Several GOP amendments to the bill failed on mostly party line votes.
Republicans were backed by the U.S. Chamber of Commerce, which has taken a central role in opposing much of Obama's plan to clamp down on financial institutions. Tom Quaadman, an executive director, said the legislation goes beyond improving disclosure.
"It moves the government into the role of setting compensation policies for virtually every employee of all financial firms," he said.
The legislation is the first piece of a major overhaul of the regulatory framework governing the nation's financial institutions.
Frank said he expects the House to finish the broader reform package by October. The Senate would follow and send a bill to the president by the end of the year, he said.