CHICAGO — President Barack Obama’s economic team tried to keep Democratic allies negotiating the stimulus bill from limiting paychecks for executives at banks in need of a bailout. Treasury Secretary Timothy Geithner and economic aide Lawrence Summers failed.
Sen. Christopher Dodd, chairman of the Senate Banking, Housing and Urban Affairs Committee, inserted strict rules into the $787 billion economic stimulus package over the White House’s objections. Dodd’s limits on bankers’ bonuses are significantly more aggressive than those sought by Obama or Geithner in recent days, with much fanfare.
Dodd, D-Conn., said the restrictions — an executive making $1 million a year in salary could receive only $500,000 in bonus money, for example — are necessary if Obama plans to ask Congress for more money to save the financial sector.
“It will never happen as long as the public perceives that there are people getting rich,” Dodd said in an interview. “Save their pay or save capitalism.”
That tone among Democrats flavored much of the discussion about how to write the stimulus bill, which the president planned to sign on Tuesday in Denver. Despite direct appeals from Geithner, Summers and White House officials, Democrats didn’t budge, according to administration officials.
The Obama administration’s proposed restrictions applied only to banks that receive “exceptional assistance” from the government. It set a $500,000 cap on pay for top executives and limited bonuses or additional compensation to restricted stock that could only be claimed after the firm had paid the government back.
The stimulus bill, however, sets executive bonus limits on all banks that receive infusions from the government’s $700 billion financial rescue fund. The number of executives affected depends on the amount of government assistance they receive. But as a rule, top executives will be prohibited from getting bonuses or incentives except as restricted stock that vests only after bailout funds are repaid and that is no greater than one-third of the executive’s annual compensation.
The prohibition would not apply to bonuses that are spelled out in an executive’s contract signed before Feb. 11, 2009.
At banks that received $25 million or less, the bonus restriction would apply only to the highest paid executives. At banks that receive $500 million or more, all senior executives and at least 20 of the next most highly compensated employees would fall under the bonus limits.
The White House claimed partial victory in this area. Officials also said that it would be up to Geithner to implement the bill and cautioned that the administration might be able to work out a deal with leaders on the Hill to modify some of the rules later.
The original bill said all banks receiving bailout money could give no bonuses to their top 25 employees. The White House worried that would dissuade smaller banks from taking — or keeping for long — the bailout money, which would slow their lending rates.
Administration officials also said they were worried Dodd’s plan would still allow multimillion dollar paychecks, just not structured as bonuses. The Obama plan would cap the entire compensation at $500,000 — with anything above that coming from restricted stock. Dodd’s plan provides no limit to base salary pay, which typically is relatively small but supplemented with gigantic bonuses.
Even so, the final bill was far stricter than the White House wanted.
“As he has already expressed, the president shares a deep concern about excessive executive compensation at financial firms that are receiving extraordinary assistance from American taxpayers,” spokeswoman Jen Psaki said Saturday.
White House officials took credit for influencing other parts of Congress’ plan, including shareholder say on pay and a requirement for companies to disclose luxury expenditures, administration officials said.
Negotiators had removed a $400,000 pay cap included in an earlier draft. The Congressional Budget Office said it would cost some $11 billion in lost tax revenues by 2019.
Associated Press writers Jim Kuhnhenn in Washington and Martin Crutsinger in Rome contributed to this report.