Posted on 02/04/2009 2:42:44 PM PST by Technical Editor
Would be part of broader bill limiting hedge funds, credit-raters, and mortgage securitizers; 'deeply rooted anger'
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Congress will consider legislation to extend some of the curbs on executive pay that now apply only to those banks receiving federal assistance, House Financial Services Committee Chairman Barney Frank said.
“There’s deeply rooted anger on the part of the average American,” the Massachusetts Democrat said at a Washington news conference today.
He said the compensation restrictions would apply to all financial institutions and might be extended to include all U.S. companies.
The provision will be part of a broader package that would likely give the Federal Reserve the authority to monitor systemic risk in the economy and to shut down financial institutions that face too much exposure, Mr. Frank said.
Also included in the legislation: registration requirements for hedge funds and proposals aimed at curbing conflicts of interest at credit-rating agencies such as Standard & Poor’s.
The bill, which the committee is working on in consultation with the Obama administration, also will require financial institutions that bundle mortgages into securities to share in potential losses. This would give banks and mortgage-specialists an incentive not to make bad loans, he said. Institutions that securitize loans improperly will incur tougher penalties.
“There have been too few constraints on major financial institutions incurring far more liability than they could handle,” Mr. Frank said.
The committee hopes to have a general outline of the legislation by early April, he said. It will be the panel’s first priority in its effort to restructure financial regulation in the wake of the worst economic crisis since the Great Depression.
Mr. Frank has summoned the CEOs of Citigroup, J.P. Morgan Chase and the seven other U.S. financial firms that got $125 billion from TARP to testify at a Feb. 11 committee hearing.
Mr. Frank seems to be in synch with the Obama administration in his plans for executive compensation.
Treasury Secretary Timothy Geithner said last month that he might try to extend to all U.S. companies a restriction that prohibits bailout banks from taking a tax deduction of more than $500,000 in pay for each executive.
The Troubled Assets Relief Program legislation enacted in October seeks to give companies receiving aid under the $700 billion bailout a number of incentives to curb what it calls excessive executive pay.
Mr. Geithner said he would consider “extending at least some of the TARP provisions and features of the $500,000 cap to U.S. companies generally.”
Under the legislation, banks receiving bailout money must limit golden parachute payments to senior executives to no more than three times the executives’ base pay. The companies also must subject any bonuses or incentives to clawbacks if the payouts are based on bank’s misleading financial statements.
In addition, bailout recipients can’t offer top managers incentives that “encourage unnecessary excessive risks that threaten the value of the financial institution.”
These limits apply to the chief executive officer, chief financial officer and the next three most highly compensated executives in a bank receiving rescue funds.
Mr. Frank said provisions on golden parachute payments and bonus clawbacks would probably be in the legislation, though he declined to provide more detail because “we’re early in the process.”
A congressional oversight panel headed by Harvard Law professor Elizabeth Warren also recommended last week that Treasury consider revoking executive bonuses at failed institutions getting federal aid.
Currently, these institutions must subject bonuses to clawbacks only if the payouts are based on banks’ misleading financial statements.
The top Republican on the committee, Spencer Bachus of Alabama, said last month he has reservations about giving the Fed new powers, such as the authority to monitor systemic risk.
Mr. Frank said today that after lawmakers address issues on systemic risk, they will consider how to bolster investor protection via changes at the Securities and Exchange Commission. The committee also will review proposals to assist struggling homeowners and expand the housing supply, and to strengthen international financial institutions such as the World Bank, he said.
Write to the editors at fw_editor@financialweek.com.
Would this apply to Katie Couric, who works for GE / NBC?
Would this apply to Tom Brady, Peyton Manning, Brett Favre, etc.? Football teams are companies.
Would this apply to Tom Cruise, Kate Winslet, Katie Holmes, and Jerry Seinfeld?
Would this apply to Tom Clancy, Danielle Steele, and John Grisham?
Most major sports teams, both college and pro, get some kind of subsidy for stadiums
The others are likely OK. I can't think of any other gov't subsidies to them.
Fine.
Universities and all kinds of Liberal groups (such as the ACLU, Planned Parenthood, NARAL, and NPR) receive all sorts of federal money, too. Let's start by cutting and capping salaries there as well. Then, let the howls begin...
While it might be applicable to companies that have accepted federal funds, this kind of sledgehammer attempt to the set limits on the remuneration offered to senior management in private corporations - not taking 'government money' - would have no constitutional basis. I doubt the corporations would simply roll over for this, but you never know.
Oh, some innocents with a lifelong grudge against 'bosses' (any boss will do) might assume this is rightful 'payback' to the 'fat cats' in the executive suite....and they will be completely wrong. The reality is that if people such as congressperson Barney Frank and the new Treasury Secretary, Timothy "I made a mistake" Geithner can get away with this they'll do great damage to the U.S. economy and, in the process, insure Obama will be a one-term president.
YEp, it’s looking more and more like Dr. Zhivago every day.
Bingo! Is Brad Pitt going to accept a $500,000 plateau? How about studio heads? How about Tiger Woods? How about Tiger Woods for one tournament. You get the picture.
Not only shall a minimum wage be dictated, a maximum wage is also dictated.
The binding principle here is “dictated”. How long until it applies to “fair trade”, “authorized rates” for business charges, and “social justice” interest rates?
One of the major actions of the New Deal, as I recall. “Office of Price Administration and Civilian Supply” was a monstrosity signed into law by FDR’s executive order in 1941, and it was not abolished until 1947. That may be the way we are headed again.
If sure that Hollywood will be exempt and of course all ball players.
Is this story fake or not?
Folks, wake up and smell the roses.
This is an assault on the wealthy in the United States. It’s the same old Lenonist tactics from the late teens of the last century.
This is class warfare. When they have solidified their grip on the throats of the wealthy, they will next tighten their grip on you and I.
This is the first step to ‘leveling out’ our society. If you can’t grant instant wealth to everyone, then destroy the earning capacity of the wealthy and then the middle class.
We must fight this with every ounce of energy we have.
I aspire to be wealthy some day. I’ll be damned if I’ll just roll over while they destroy a level of existence I aspire to.
The wealthy have worked to achieve what they have. I have no problem with them making massive amounts of money. And if their corporation is doing well, then who cares.
Just why is it that corporations aren’t doing well today. Was it their fault, or the fault of the socialists who thought everyone should have a home loan, whether they could service the loan or not?
This corporate pay business is seriously flawed.
BTW...
They are stepping into it with this one...
A good Doctor at a Major Hospital can be making this in no time. After all those years of med school just to be capped? This is just one example. The question is, how many will John Galt and stop producing and walk away? IMHO if Conservatives did that they couldn't run the country without us....
But that’s the beauty of it. They want to destroy this nation. It’s the only way it’s evil influence can be rendered extinct. Don’t think they want us to succeed at anything except destruction.
It’s actually not a direct cap on compensation. It’s a limit to how much executive salary a company can claim as an expense against income tax.
It is a very sinister application of the 16th amendment. The problem is that it will have very strong demagogic appeal to a majority of Americans who don’t grasp and don’t care about the implications of such actions by our government.
I don’t think the states had this in mind when they approved the 16th amendment, but the power they granted to the Congress on collecting income taxes has been understood by the courts to be absolute, so I’ve read.
BTTT!
"The other day the oil companies recorded the highest profits in the history of the world. I want to take those profits. And I want to put them into a strategic energy fund that will begin to fund alternative smart energy, alternatives and technologies that will actually begin to move us in the direction of independence."
Hillary Clinton
If you liked that, try 33 for a chaser.
Barney is THAT ignorant?????
I think he wants a revolution.
Barney “There's nothing wrong with Fannie or Freddie” Frank fails to understand the deep-rooted anger in this country over his role in orchestrating the meltdown in the mortgage market. He should be brought up on charges for what he has done.
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