Obama plan limits bonuses, golden parachutes
— -- The Obama administration unveiled a plan Wednesday to help rein in executive compensation at all publicly traded companies, as part of its response to widespread criticism of high executive pay at firms that had to be bailed out by the U.S. government.
"This financial crisis had many significant causes, but executive compensation practices were a contributing factor," Treasury Secretary Timothy Geithner said as he announced the initiatives.
The Treasury proposed legislation giving shareholders a say on the salary and bonus packages of executives with a non-binding vote, which will likely bring more transparency to the process. The legislation also aims to give the Securities and Exchange Commission power to ensure that companies' compensation committees have greater independence setting executive pay.
"This kind of legislation will change the balance of power on compensation, between executives and shareholders," says Jesse Fried, executive compensation expert and law professor at the University of California-Berkeley.
Executives at companies that received bailout money face much more stringent compensation rules. The Obama administration named Kenneth Feinberg as the "pay czar" to oversee compensation at companies that received bailout funds, such as Citigroup, Bank of America, General Motors and Chrysler. Feinberg will enforce rules, including:
•No bonus, retention award or incentive compensation to top-level executives and some highly compensated employees.
•No golden parachute payment to either a senior executive or the next five most highly compensated employees.
•"Claw back" provisions to recover bonuses, retention awards or incentives paid to executive officers and the next 20 most highly compensated employees if they provide inaccurate statements such as earnings or revenue.
Geithner isn't imposing caps on pay overall on banks, though he laid out guidelines for banks that have either paid back or didn't take bailout money, calling for compensation to be tied to long-term value creation and re-evaluating golden parachutes.
