Congress Speaks Out About CEO Bonuses
Using Federal Money for Bonuses Is a 'Betrayal,' Rep. Barney Frank Says
By DAVID MUIR
Oct. 30, 2008—
News of the $700 billion financial rescue package funded by taxpayer dollars to bail out banks was already a tough pill for many critics to swallow.
But though members of Congress claim they have tackled the issues of CEO pay and "golden parachutes," it turns out they have not taken substantial action to limit year-end bonus checks on Wall Street.
"People have been lining their pockets and are continuing to line their pockets today," said Rep. Luis Guitierrez, D-Ill., who is raising concerns to Treasury Secretary Henry Paulson about executive compensation. "I want to make sure it doesn't happen tomorrow, because, politically, that's very embarrassing to me."
Some industry analysts predict that the average managing director at an investment bank that is receiving government money could receive a bonus of $625,000 this year, according to data from Alan Johnson and Associates.
While that bonus is less than the $1.1 million investment bankers earned last year, it's still 15 times the income of the average American household.
On Thursday, members of Congress, many of whom voted in favor of the bailout, demanded answers about how the bailout money will be put to use.
"We're asking the hard question: What are you doing?" said Rep. Henry Waxman, D-Calif. "Are you actually going to be giving bonuses out and then coming to the government and saying, 'Give us money because we're short on cash?'"
About $125 billion from the $700 billion financial rescue package has been allocated to nine troubled banks, including Goldman Sachs and JP Morgan Chase, according to the Treasury Department.
Ed Lazear, chairman of the Council of Economic Advisers, ensured critics Thursday that the government will monitor and regulate how the banks use the bailout dollars.
"We're going to follow the law and make sure there are not abuses, but we want to make sure we get the economy going," Lazear said, defending the White House's handling of the stimulus package.
But taxpayers, whose money has gone to give firms a lifeline, wonder why these issues were not addressed before the $700 billion financial rescue plan was passed.
"All the bailout did was reward high-risk behavior," one ABC News viewer wrote on ABCNews.com. "I'm really peeved. I will not vote for any incumbent candidate who voted for it."
Rep. Barney Frank, D-Mass., one of the plan's architects, spoke to ABC News about how corporate bonuses could have been overlooked when discussing the rescue plan.
"Every dollar of it is supposed to be used to re-lend," Frank said. "Whether it's used for bonuses or for, as they say, acquisition of another bank, or for dividend payment, that's a betrayal of these purposes."
He said officials trusted the banks to do the right thing and added that Congress would work to fight for further transparency.
Even some experts who've railed against CEO pay aren't as quick to criticize bonuses for the rank and file retain the best brains and workers. They said bonuses are part of a corporate incentive structure that would be risky to remove.
"These investment bankers would just leave the company," said Jessie Fried, author of "Pay Without Performance." "They'd go work at a hedge fund or one of the banks that's not getting an infusion of money from the U.S. government."