Congress End Runs Obama On Pay Caps
Feb 14th, 2009 | 17 responses
Oh, those sneaky congressmen. This group receives automatic pay raises every year. Yet, they jerked the compensation cap of senior corporate executives from President Obama’s financial sector bailout plan and inserted it in the $789 billion stimulus package for his expected signature next Tuesday.
It begs the question: Since when does cutting a banker’s earnings stimulate the economy? And, God forbid, what business is it of Congress to establish compensation guidelines in the private sector? (Okay, some irresponsible, me-first corporate executives paid out $18 billion in bonuses from taxpayer bailout funds infused to keep their companies solvent. I get it.)
How did this happen? Simple. Guess how many of the 545 House members and senators read all the 1,100-page stimulus bill in the 24-hour-to 48-hour deadline imposed on them before voting? My guess is zero.
Obama’s proposal was to cap compensation at $500,000 for “senior” executives while allowing them to receive stock they could not sell until the company repaid its entire federal bailout largess. This plan, for financial companies receiving the second dole of the $750 billion bailout, penalized the bosses but failed to address the larger issue of bonuses to the real income-producers, the brokers.
Congress certainly closed that loophole, according to a story in Saturday’s Washington Post.
The bill limits bonuses for executives at all financial institutions receiving government funds to no more than a third of their annual compensation. The bonuses must be paid in company stock that can be redeemed only when the government investment has been repaid. Unlike the rules issued by the White House, the limits in the stimulus bill would apply to top executives and the highest-paid employees at all 359 banks that have already received government aid.
The bonus restrictions would apply to a varying number of employees at each firm, depending on how much money the firm has taken in government assistance. At banks receiving less than $25 million, the limits would apply to only the highest-paid employee. For those receiving $25 million to $250 million, the restriction would apply to the five highest-paid employees. The top five executives and ten highest-paid employees would be affected at firms receiving $250 million to $500 million.
At firms getting more than half a billion dollars, which would include all of the Wall Street giants, the rules would apply to the top five executives and the 20 highest-paid employees. Taxpayers have injected $45 billion each into Citigroup and Bank of America.
Other measures in the bill include a ban on golden parachutes to departing executives. This would apply to the top 10 most highly-paid employees at all financial institutions currently receiving government aid. The measure allows companies to continue to pay out deferred compensation and benefits such as pensions. There are billions of dollars in such awards on the books of financial institutions.
“This is a big deal. This is a problem,” said Scott Talbott, chief lobbyist for the nation’s largest financial services firms. “It undermines the current incentive structure.”
Talbott said banking executives are concerned that some of the most highly paid employees, such as top traders, who bring in hefty sums for the company, would flee to hedge funds or foreign banks that have not accepted U.S. government funds.
Bonuses make up much of financial executives’ take-home pay, so the new rules could significantly diminish their compensation.
For example, Goldman Sachs chief executive Lloyd Blankfein made $68.5 million in 2007 — a Wall Street record — but $67.9 million of that was in bonus and other incentive pay that analysts said would be subject to the new rules.
Citiggroups’s top executive, Vikram Pandit, has voluntarily agreed to a $1 salary until his company returns to profitability. In theory, this means that Pandit would be allowed an annual bonus of pennies.
Critics of excessive executive pay assert that companies have always found ways around compensation rules.
“Congress missed a huge opportunity to set a strict and measurable limit on executive pay,” said Sarah Anderson, a director at the Institute for Policy Studies in Washington. “I’m afraid companies will find ways to shift compensation to other pots and continue to make massive payouts that have so outraged the American people.”
The public outrage erupted as a result of the gulf that widened the last 20 years between executives and employees share of company earnings, triggered in some part by the declining status of labor unions.
Meanwhile, Congress casts a blind eye to the more than 3 million constituents who have lost their jobs as they took a $4,700 pay raise at an additional $2.5 million for lawmakers’ salaries last December.
The raises are automatic and require a vote only to freeze or lower the salary schedule. According to The Hill watchdog newspaper of Congress:
In the beginning days of 1789, Congress was paid only $6 a day, which would be about $75 daily by modern standards. But by 1965 members were receiving $30,000 a year, which is the modern equivalent of about $195,000.
Currently the average lawmaker makes $169,300 a year, with leadership making slightly more. House Speaker Nancy Pelosi (D-Calif.) makes $217,400, while the minority and majority leaders in the House and Senate make $188,100.
Still, Steve Ellis, vice president of the budget watchdog Taxpayers for Common Sense, said Congress should have taken the rare step of freezing its pay, as lawmakers did in 2000.
“Look at the way the economy is … they’re just happy to have gainful employment,” said Ellis. “But you have the lawmakers who are set up and ready to get their next installment of a pay raise and go happily along their way.”
Ellis said that while freezing the pay increase would be a step in the right direction, it would be better to have it set up so that members would have to take action, and vote, for a pay raise and deal with the consequences, rather than get one automatically.
Cross posted on The Remmers Report
17 Responses to “Congress End Runs Obama On Pay Caps”
Um, you do realize that this only applies to bankers who receive Federal bailout money, right? I'm glad you're bothered with the bank lobby that these folks won't receive big bonuses. I'm not bothered. And I doubt Obama is all that bothered either.
As for Congressional pay raises, I agree with you they should take a freeze or cut this year. My pay was cut as was the salary of thousands of others here in my community. I think Congress should do the same.
I think rather than banning bonus plans for top executives of those banks, perhaps the bonus plans should be structured so that the bonus can only be earned with positive performance. By that I don't mean mere acceptable performance, but outstanding performance that maximizes profits and growth in the institution that the CEO is running. And these bonuses should not easily be attained, but rather easily lost if the CEO in question fails to gain ground in any of a number of performance categories.
Clearly, if a bank falls into the category of needing the bailout in the first place then the CEO who drove the bank into the ditch should not only lose his or her bonus, but should wind up owing money to take responsiblilty for the mishap.
elrod – and you really believe this new-found authority to control pay that Congress has granted upon itself will not be expanded beyond all recognition in the near future?
WHO’S LOOKING AT THE COMPENSATION OF THE HEALTHCARE INSURANCE EXECUTIVES?
The health insurance companies have played a major role in our current healthcare crisis. They make huge profits and their CEOs make millions, while the rest of us are denied care.
ANNUAL COMPENSATION OF HEALTH INSURANCE COMPANY EXECUTIVES (2006 and 2007 figures):
• Ronald A. Williams, Chair/ CEO, Aetna Inc., $23,045,834
• H. Edward Hanway, Chair/ CEO, Cigna Corp, $30.16 million
• David B. Snow, Jr, Chair/ CEO, Medco Health, $21.76 million
• Michael B. MCallister, CEO, Humana Inc, $20.06 million
• Stephen J. Hemsley, CEO, UnitedHealth Group, $13,164,529
• Angela F. Braly, President/ CEO, Wellpoint, $9,094,771
• Dale B. Wolf, CEO, Coventry Health Care, $20.86 million
• Jay M. Gellert, President/ CEO, Health Net, $16.65 million
• William C. Van Faasen, Chairman, Blue Cross Blue Shield of Massachusetts, $3 million plus $16.4 million in retirement benefits
• Charlie Baker, President/ CEO, Harvard Pilgrim Health Care, $1.5 million
• James Roosevelt, Jr., CEO, Tufts Associated Health Plans, $1.3 million
• Cleve L. Killingsworth, President/CEO Blue Cross Blue Shield of Massachusetts, $3.6 million
• Raymond McCaskey, CEO, Health Care Service Corp (Blue Cross Blue Shield), $10.3 million
• Daniel P. McCartney, CEO, Healthcare Services Group, Inc, $ 1,061,513
• Daniel Loepp, CEO, Blue Cross Blue Shield of Michigan, $1,657,555
• Todd S. Farha, CEO, WellCare Health Plans, $5,270,825
• Michael F. Neidorff, CEO, Centene Corp, $8,750,751
• Daniel Loepp, CEO, Blue Cross Blue Shield of Michigan, $1,657,555
• Todd S. Farha, CEO, WellCare Health Plans, $5,270,825
• Michael F. Neidorff, CEO, Centene Corp, $8,750,751
This executive compensation could be used to provide quality healthcare for millions of Americans! THE HEALTH INSURANCE INDUSTRY MUST BE REGULATED AS WELL.
If you want to learn more, go to:
http://www.insurancecompanyrules.org/learn_more…
If you come to me for a F***ing handout, I have every right to tell you how to spend that money.
They failed.
THEY F***ING FAILED!!!
Why can't some people understand that. They failed, while robbing their shareholders and bankrupting the economy. Then they came begging for handouts and the “conservatives/free marketers” can only rail against the fact that Congress put some limited restrictions on how much they can continue to loot their company.
God I'm sick of you faux conservatives/free marketers.
AR,
Actually I don't. The only reason Congress acted this way was because of the public outrage against people like Thain getting obscene bonuses for failure after taking public money.
But Americans generally don't like the idea of salary caps – except in specific controlled areas like sports leagues. Also, the public outrage is not over the bankers being rich and getting big bonuses, per se. It's outrage at their willingness to take Federal dollars and give out bonuses after failing at their jobs.
THEY F***ING FAILED!!!
Based on that comment, it is apparent you have no f***ing clue about the subject. No institution having already received TARP capital has failed. None have even yet to miss a scheduled dividend return payment.
If you want to criticize, you should understand the subject matter at least as well as the people who are reading what you write.
AR, the rule does nothing to touch 403b or equity comp. It will likely have only symbolic effect.
“what business is it of Congress to establish compensation guidelines in the private sector?”
*******
That's the easiest question I've seen in a good long while. Answer: when the private sector asks to be bailed out. A lender or a donor has the right to set conditions that the begger/applicant must abide by in order to qualify for the loan/bailout.
Period. Next question….(these are easy!)
Elrod –
But the reality is as the stimulus bill touches more and more sectors and companies, directly and indirectly, the call to stop the 'obscene pay' will happen. It is truly nave to think it won't. While loviatar may just be ranting, it is an example of what the Democrates will hear and Respond to.
The Democratic party lives and thrives on class warfare, and as the recession deepens they will cynically exploit those sentiments to their advantage. these days, people are being told on a daily basis how evil, greedy and dishonest all business is, and in particular business executives.
Look at the silly crap over having a meeting in Las Vegas to reward those employees who WERE top producers. That is a general business activity, designed to be a truly low-cost to way reward for top producers (to the company, compared to bonuses, etc.). Next the attacks will come on trade shows being held anywhere other than Fargo, ND, as boondoggles. I know I sound cynical (and I am), but this train has already left the station, and is building up steam.
Back to compensation. Health care is likely next, along with the home building and mortgage businesses. General construction industries, defense contractors, and of course Big Oil and Big Pharma will get it, too. And so on, and so on.
Also, we will see a progression down the ranks as to who is considered highly compensated enough that the government should step in. If they can dictate CEO and top level-pay, which in reality is a small proportion of the total pay structure of all companies, as it is a small group that gets that kind of pay, and if the cap is now $500K, once we are used to that, then those making $350K need to rained in, then $200K, and so on.
Congress will NOT give back this control, at least as long as it has a Democratic majority, and/or a closure-proof minority in the Senate. They will use it to win the hearts of their base, and to blackmail almost all business sectors.
There is a possible silver lining to all this. As more and more people leave existing corporate America, though company failures, the onerous rules that will be enforced, etc., another wave of bright, ambitious and motivated professionals will be incented by the lack of such rules over new companies to kick-start another entrepreneurial wave like we saw in the 80's and 90's. Of course, it could just mean that foreign companies pick up the slack as American companies become less competitive, forcing us to second class status.
There are, unfortunately, those among us who think that is just a grand idea.
AR,
Your response veers from reasonable to the paranoid. If the Democrats truly wanted to punish the rich in real “class warfare” form, they would radically alter the tax system and put the top bracket back to where it was in the 1950s – 90%. As a member of the Democratic base, I can assure that that is not what I or most Democrats want.
The problem is not rewarding success. The problem is taking government to reward failure. It's pure corruption, just like when a big city Democratic mayor gives out overpriced contracts to his friends. When the banks take Federal money and give huge bonuses to failed executives, I am reminded of Marion Barry who used to reward incompetent DC employees for their loyalty.
The bank case does not resemble the other issues in the stimulus. Quite simply, the banks are ASKING for bailout money. If they don't want to change their practices, they should be allowed to sink or swim on their own. Nobody wonders if the health or pharmaceutical industry is surviving.
@CasualObserver
Citigroup – Failed twice
Bank Of America – Failed once
AIG – Failed three time
Get your head out of Rush's opinion hole and join the rest of us in the reality based community.
“Your response veers from reasonable to the paranoid”
A fair statement for now, but until time has passed, it is impossible to say for sure. Paranoia of potential future events based on extrapolation of current trends and fears of escalation of those trends is certainly different than personal, persecution-based paranoia, which is a true mental disease. I will give you the benefit of the doubt that that was not the intent of your statement, because even if you disagree that some of my underlying concerns are likely, they are not irrational.
As an example of what I mean, in the initial days after 9/11, those who put forth some of their fears of the expansion of government powers and surveillance, and a coming reduction and violation of many personal liberties beyond what was initial requested were also labeled paranoid. But a lot of those fears came true, didn't they?
So, in the non-clinical sense of the word, yes indeed I am paranoid of where this current anti-business, government managed economy trend may be leading our country.
And, God forbid, what business is it of Congress to establish compensation guidelines in the private sector?
The Rednecks from the South wanted to stick it to UAW line workers – I guess that is OK. But don't stop BofA executive from spending over $%1,000,000 including a European commode for his office.
AR,
And, yes, it's true that just because one is “paranoid” does not mean nobody is out to get you. I just don't think the impulse toward utter punishment of wealth is there in the Democratic base. As GOP rhetoric? Sure. But as real Democratic sentiment? I don't sense it.
Yes, I do not mean clinical paranoia
Why not tell you how much you may make? You're already told how wide you need to make your doors, right? More to the point here, telling execs (or telling bank officials who set exec pay) how much execs may make is not the first thing on the minds of the power-hungry and resentful in and out of Washington. Don't be surprised to see federal corporate charters someday or federal officials joining management or boards of directors.
Then come things like pay equity and more complex rules for pay of all employees, and “social responsibility” and all the rest that follows from it.
Simple response:
The banks that fall under this new regulation are not private corporations.