WASHINGTON – The stimulus package crafted by Congress this week imposes new limits on executive compensation that could significantly curb multimillion-dollar pay packages on Wall Street and go much further than restrictions imposed by the Obama administration.
The bill, which President Barack Obama is expected to sign into law, 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 only be redeemed once the government investment has been repaid. The measure seeks to address public outrage over extravagant Wall Street paydays as taxpayers bail out the industry.
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.
“This is a big deal. This is a problem,” said Scott Talbott, chief lobbyist for the largest financial services firms. “It undermines the current incentive structure.”
Talbott said banking executives expected certain restrictions would be applied to them but are concerned that some of the most highly paid employees, such as top traders, who bring in hefty sums of money for the company, would flee to hedge funds or foreign banks that have not accepted U.S. government funds.
The White House restrictions capped executive pay at $500,000 and allowed companies to award unlimited stock. Those rules applied only to institutions that receive government funds in the future and under limited circumstances.
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.