House Approves Executive Pay Limits

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.

Earlier this week, the House Financial Services Committee approved legislation that goes even further than what the administration had requested.

"Compensation structures," stated committee chairman Barney Frank, D-Mass., at Tuesday's mark-up session, "are a problem."

His committee passed the bill by a vote of 40-28, despite stiff Republican opposition.

"The government should not be in a position of setting executive compensation," argued the panel's ranking member Spencer Bachus.

"We are basically -- I think, in this legislation -- overreacting to problems which have occurred," echoed Rep. Mike Castle, R-Del.

Fierce dissent also has emanated from the financial industry. The U.S. Chamber of Commerce this week sent a letter to Capitol Hill complaining that the legislation goes way too far.

"The passage of this legislation would create a command and control regulatory scheme that would restrict the economic growth and job creation that our nation so desperately needs," said Tom Quaadman, executive director of the chamber's Center for Capital Markets Competitiveness.

"It moves the government into the role of setting compensation policies for virtually every employee of all financial firms."

The industry also contends that compensation caps will limit the ability of companies to attract top talent in a competitive field. Moreover, it has led to fears that the government is overstepping its bounds into private businesses.

"The bill is a large step towards expanding the role of government into the private sector," warned Scott Talbott of the Financial Services Roundtable.

But despite the arguments from Wall Street, Republicans and elsewhere, the measure seems set to pass on the strength of the Democratic majority in the House, a move that will come as welcome news to many outraged Americans on Main Street.

Just this week, another big-bucks payday for a Wall Street trader incited anger and disbelief. Citigroup trader Andrew Hall reportedly is due to receive a bonus of up to $100 million thanks to a contract he signed prior to the market meltdown. Citigroup has received $45 billion in government bailout money, but since Hall's contract was signed before Feb. 12, Feinberg cannot force Citigroup to break the deal.

A Treasury Department spokesman would only provide the same statement given in the past, stating that department officials "are not going to provide a running commentary" on Feinberg's work with the firms.

The problems inherent in Hall's case are ones the administration does not want to have to confront in the months and years ahead. Lessons from the past, they believe, should lead to changes in the present and improvements in the future.

As Geithner told a House panel last week, "This will require reform to compensation practices."

But critics say Congress and Feinberg are not up to the task.

"The Obama administration pay czar is a cruel hoax," said Peter Morici, professor at the University of Maryland. "This is really a regulatory job for the Comptroller of the Currency, FDIC and Fed and they are blind to facts and deaf to reason on this issue."

"Those regulators," he continued, "would not allow an Iowa bank to pay its CEO $10 million a year, run down the capital and leave the bank and depositors vulnerable, but that is exactly what happened at the big banks in New York from 2004 to 2008, and is happening again. I don't expect Congress to improve on this much."

Rep. Jeb Hensarling, R-Texas, said "People need to read this bill, not just the bumper sticker slogan. This legislation will give unelected bureaucrats the power to take away Christmas bonuses and other incentives at financial intuitions across America. Now that GM and Chrysler are considered financial institutions, what's next? Will they outlaw tips at Starbucks?"

ABC News' Dan Arnall contributed to this report.