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Tuesday, June 18, 2024 | Back issues
Courthouse News Service Courthouse News Service

Exec Bonus Pay Hit by Double Whammy

WASHINGTON (CN) - Washington delivered a one-two punch to big-bonus executives Thursday as the White House and the Federal Reserve simultaneously announced measures efforts to rein in their pay. "We don't begrudge anybody for doing well," President Obama said. "But it does offend our values when executives of big financial firms, firms that are struggling, pay themselves huge bonuses even as they continue to rely on taxpayer assistance to stay afloat."

The Federal Reserve announced a plan to tie executive compensation to the long-term success of companies and the White House demanded that top executives of bailed-out companies cut their compensation by an average of 90 percent.

One difference is that the White House announcement affects fewer than 200 executives- those who work for companies that received government bailout money. The Fed regulations would be felt throughout the financial sector.

Kenneth Feinberg, who has been labeled as the White House pay czar, said that no company he has reviewed so far has satisfied the criteria for good compensation practices.

Feinberg was appointed by the Obama administration appointed Feinberg to look into the compensation practices of such bailout giants as Citigroup, Bank of America, American International Group, General Motors, and Chrysler.

He demanded that the top 25 employees of companies that received federal bailout money cut their compensation in half, on average. The move stripped executive compensation by an average of 90 percent.

Cash salaries are expected to be forced to below $500,000.

At Bank of America, the highest compensation package, stock options included, is expected to be less than $10 million, and at AIG, no employee is expected to earn more than $200,000 in compensation.

To entice financial leaders to pursue the long-term health of their companies, Feinberg also called for financial leaders to not be allowed to sell stock options until four years after receiving them.

Obama has urged the Senate to pass legislation to let company shareholders have a say in executive pay packages.

As a separate matter, the Fed announced that it plans "to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of their organizations."

It plans to review the largest 28 banks to ensure that their compensation policies do not promote excessive risk taking.

"Flaws in incentive compensation practices were one of many factors contributing to the financial crisis," reads the Fed's statement. "Inappropriate bonus or other compensation practices can incent senior executives or lower level employees, such as traders or mortgage officers, to take imprudent risks that significantly and adversely affect the firm."

Many have expressed concern that reduced compensation will result in a brain drain from American companies, but idea of executive pay cuts is reportedly popular among Americans.

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