Obama restricts executive compensation for companies seeking federal aid

[JURIST] US President Barack Obama [official profile] announced Wednesday that his administration will place a $500,000 cap on executive compensation [WH press release] for companies receiving "exceptional assistance" from the federal government. The statement came in conjnction with an announcement from Treasury Secretary Timothy Geithner [official profile], highlighting increased restrictions on financial institutions [Treasury press release] receiving government assistance. The US Treasury Department [official website] outlined restrictions, including a $500,000 cap on executive compensation, a requirement that any additional executive compensation be paid in the form of stocks that would be untradeable until the federal government recouped its investment in the financial institution, an increased ban on so-called "golden parachutes" for senior executives, and a requirement of a company-wide policy adopted by the board of directors regarding the approval of luxury expenditures. Financial institutions subject to the heightened restrictions include any institution requiring more assistance than is allowed under a widely available standard program, including AIG, Bank of America, and Citi [corporate websites]. Obama said:

As part of the reforms we're announcing today, top executives at firms receiving extraordinary help from U.S. taxpayers will have their compensation capped at $500,000 - a fraction of the salaries that have been reported recently. And if these executives receive any additional compensation, it will come in the form of stock that can't be paid up until taxpayers are paid back for their assistance.

Companies receiving federal aid are going to have to disclose publicly all the perks and luxuries bestowed upon senior executives, and provide an explanation to the taxpayers and to shareholders as to why these expenses are justified. And we're putting a stop to these kinds of massive severance packages we've all read about with disgust; we're taking the air out of golden parachutes.

We're asking these firms to take responsibility, to recognize the nature of this crisis and their role in it. We believe that what we've laid out should be viewed as fair and embraced as basic common sense.
Wall Street firms and financial journalists reacted cautiously [AFP report] to the new restrictions, citing fears that decreased compensation would lead to more talented executives leaving top positions on Wall Street.

Obama's remarks and the increased restrictions on executive employment come as the US government and the Obama administration attempt to grapple with the ongoing global financial crisis [JURIST news archive]. Attempts to gain control over the roiling credit markets and possible widespread bank insolvencies have included the passage in September of a $700 billion financial rescue bill [JURIST report], creating the Troubled Asset Relief Program (TARP) which provided economic assistance to at-risk financial institutions. In early October, the US Securities and Exchange Commission began an agency review of financial accounting procedures [JURIST report], including "mark-to-market" [SEC backgrounder] rules. On Monday, European Commission [official website] ambassador to Washington John Bruton [official profile] indicated that the EU would be prepared to take legal action [JURIST report] if US Congress includes a "Buy American" provision [text] in an economic stimulus package [H.R.1 materials] that is currently being considered by the US Senate.


 

About Paper Chase

Paper Chase is JURIST's real-time legal news service, powered by a team of 30 law student reporters and editors led by law professor Bernard Hibbitts at the University of Pittsburgh School of Law. As an educational service, Paper Chase is dedicated to presenting important legal news and materials rapidly, objectively and intelligibly in an accessible format.

© Copyright JURIST Legal News and Research Services, Inc., 2013.