Limits on executive compensation, Take II

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President Obama just finished a White House press conference with newly-confirmed Treasury Secretary Geithner that follwed up on a reform that Congress promised but failed to deliver on. They announced a curb on excessive executive compensation at Wall Street firms by announcing a $500,000 cap on executive pay for companies that receive taxpayer bailout funds.

President Obama characterized massive salaries and bonuses as the “height of irresponsibility” by companies that have come hat-in-hand to American taxpayers, and decried the Wall Street “culture of narrow self-interest and short-term gain at the expense of everything else.”

We criticized Congress last year for claiming that they’d capped executive compensation in the bailout legislation when their limits were unlikely to ever be applied.

The question is whether the administration’s standard is much more meaningful. The strong cap on compensation includes the possibility of additional stock rewards, redeemable only after taxpayer funds are paid back. That sounds reasonable, and could force executives to have a long-term outlook. But the president also said the cap would apply only to companies who receive “exceptional” taxpayer funds. “Exceptional” should mean any company that has its hand in the bailout till. The reporting thus far (here’s the Washington Post’s analysis) makes it sound like it most companies that receive TARP funds are exempted. Limiting executive pay at any company bailed out by taxpayers is a step in the right direction, but the administration should demand restraint in exchange for federal aid for any company bailed out on the taxpayer dime, not just a narrow few.

Consumer Watchdog
Consumer Watchdog
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