Plan Calls for Stricter Executive Pay Limits

Banks participating in the federal rescue program announced today must abide by stricter restrictions on executive pay than Treasury officials first indicated were required under the legislation.

The new restrictions include some of the toughest requirements spelled out by Congress.
The plan's new rules require that participating banks take back executive bonuses if they were based on misstated earnings; it forbids the payment of golden parachute payments to senior executives; and prohibits incentive pay that encourages "unnecessary and excessive risks."

The rules issued by Treasury also preclude participating banks from deducting from taxes executive salaries in excess of $500,000 per executive.

One of the key sticking points in the congressional negotiations over the $700 billion rescue plan was how much financial institutions who receive federal help should be required to limit executive pay.

These provisions were among the last to be settled during negotiations between lawmakers and Treasury Sec. Hank Paulson, who was resistant to placing limits on executive pay.

As recently as late last week, Treasury officials had argued privately that the legislation required only "minimal" restrictions on executive pay and told congressional staffers that there was "wiggle room" under the new law.

Sen. Charles E. Schumer (D-NY), who had pressed for stricter limits on executive pay, expressed cautious optimism in a statement after the new rules were announced.

"They could have gone either way on how to restrict executive compensation," Schumer said. "They made the right decision by using the stronger guidelines. Now we look forward to seeing exactly how those guidelines get implemented."

--Peter Whoriskey

October 14, 2008; 12:34 PM ET  | Category:  business
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Posted by: benq11 | October 14, 2008 12:38 PM

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