House Approves Executive Pay Limits
The House bill bans pay practices that reward taking 'inappropriate risks.'
WASHINGTON, July 31, 2009 -- Amid the worst financial crisis since the Great Depression, few issues have sparked more outrage than executives on Wall Street taking home big bucks, even as their companies took risks that sent the country plunging into recession. Just this week, a report from New York Attorney General Andrew Cuomo revealed that the first nine banks to receive government bailout funds dished out nearly $33 billion in bonuses last year, with 4,800 employees taking home bonuses over $1 million.
Now, lawmakers in Congress have taken action.
Today, the House of Representatives passed a bill to shut down what some people would consider excessive executive compensation. The vote was 237-185. The Senate has yet to act on the measure.
The bill would give federal regulators the power to restrict pay practices that prompt "inappropriate risk" at financial firms. It also would give shareholders a non-binding annual vote on salary and bonuses for the top executives at all public companies across the country.
The goal is to make sure that compensation practices do not give employees incentive to take big risks that might lead to short-term gains, but could result in financial ruin in the long run.
"We had a financial crisis which, although it was caused by many things, there were clearly some aspects of compensation which contributed to the extent of risk-taking we saw across the financial sector," Treasury Secretary Tim Geithner said last month.
The public backlash, especially at companies that needed taxpayer-funded bailouts, has been widespread. Washington has wasted no time in channeling that wave of outrage into action. On June 10, the administration outlined its proposals, sending them to Capitol Hill a week later.
"For top executives to award themselves these kinds of compensation packages in the midst of this economic crisis is not only in bad taste, it's a bad strategy," President Obama said. "And I will not tolerate it as president."
One immediate move was putting Ken Feinberg in charge of overseeing compensation at seven companies getting what the government deems "exceptional assistance": AIG, Citigroup, Bank of America, General Motors, GMAC, Chrysler and Chrysler Financial.
But the administration wanted further action, including the new guidelines for all publicly-traded companies and the "say on pay" vote.
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