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US Treasury issues rulings restricting executive compensation

[JURIST] The US Treasury Department [official website] on Thursday released a series of rulings that would restrict executive compensation [press release] at institutions that received special assistance from the Troubled Asset Relief Program (TARP) [text]. Among the changes are a cash cap on compensation of $500,000 per year for most relevant employees, immediate vesting of stock options for those paid in that manner, and a limit on stock provided as incentive compensation, including ties to corporate performance and repayment of TARP funds. The restrictions would apply to the five most senior executives and the other 20 highest paid employees at American International Group (AIG), Citigroup, Bank of America, Chrysler, General Motors (GM), GMAC, and Chrysler Financial [corporate websites]. Also on Thursday, the Federal Reserve issued its own plan [press release, PDF] to monitor and reform compensation strategies at 28 large banking corporations, citing a need to, "Provide employees incentives that do not encourage excessive risk-taking beyond the organization’s ability to effectively identify and manage risk." As expected for an issue as contentious as executive compensation, responses to these restrictions were mixed. New York Governor David Paterson applauded the accountability [pres release] that such measures would provide, but lamented the loss of state tax revenue. Robert Reich, the secretary of labor under Bill Clinton, and a member of President Barack Obama's economic advisory team, expressed similar mixed feelings [Huffington Post op-ed], focusing instead on the lack of true regulatory reform to prevent a similar economic collapse in the future.

In late July, the US House of Representatives passed HR 3269 [JURIST report], which would regulate executive compensation. The bill is currently in the Senate Committee on Banking, Housing, and Urban Affairs. Capping executive compensation is just one way the federal government has identified to protect consumers from future economic turmoil. In September, Obama renewed a call for a Consumer Financial Protection Agency and greater financial regulations [JURIST report]. In March, the House passed a bill that would impose a punitive tax [JURIST report] on bonuses received by executives at institutions that received TARP funds, however that bill remains in the Senate, with no significant action taken as of yet.

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