Obama: TARP Firms Paying Huge Bonuses ‘Does Offend Our Values’

October 23, 2009

(ChattahBox)—As promised yesterday by the Treasury Department and Kenneth Feinberg, the special master for compensation, further details and limitations on executive compensation for firms accepting federal bailout funds were announced today, shocking many institutions at their scope and reach. Additionally, the Federal Reserve issued plans to regulate compensation practices at thousands of U.S. banks under its control, to limit employee risk taking that could negatively impact the nation’s economy.

On The Treasury side, pay czar Kenneth Feinberg announced that cash compensation for top executives at seven TARP firms under his control receiving extensive taxpayer assistance, will be capped to $500,000, with a cut of 50 percent in total compensation.

According to the Wall Street Journal:

“In addition to setting dollar amounts for the highest-paid 25 employees at each of the seven companies, Mr. Feinberg is also charged with setting compensation structures for an additional 525 people at the firms. Some of the toughest pay restrictions will come at the financial-products unit of American International Group Inc., which has been blamed for the firm’s near-collapse. No employee within that unit will receive compensation of more than $200,000, people familiar with the matter said.”

Some of the reductions would be replaced with company stock that can’t be sold for at least four years. Incentives provided for companies to repay the TARP funds would allow employees to have access to the so called “salary stock” sooner.

On the Federal Reserve side, Chairman Ben Bernanke’s sweeping bank compensation proposal seeks to significantly change the compensation practices to curb employee risk taking for short term gains. Such out of control risk taking was a major factor in the economic collapse last fall.

The Federal Reserve “is working to ensure that compensation packages appropriately tie rewards to longer-term performance and do not create undue risk for the firm or the financial system,” said Bernanke. But that does not mean that the Fed is proposing a “one size fits all” system.

The new standards would become ingrained into the current supervisory process to ensure compensation practices of banks don’t encourage excessive risk taking.

President Obama issues a statement hailing the new rules proposed by the Federal Reserve and the tough compensation orders issued by the Treasury Department:

“I’ve always believed that our system of free enterprise works best when it rewards hard work. This is America. … But it does offend our values when executives of big financial firms, firms that are struggling, pay themselves huge bonuses, even as they continue to rely on taxpayer assistance to stay afloat,” said Obama.


Comments

One Response to “Obama: TARP Firms Paying Huge Bonuses ‘Does Offend Our Values’”

  1. Old Man Dotes on October 23rd, 2009 11:30 am

    Please do note that nearly all of the risky behaviors that led up to the economic collapse were permitted because the Reagan Administration deregulated the banking industry to the point that it was the fiscal equivalent of the Wild West.

    The purpose of government is to keep things sufficiently under control that we don’t all kill each other, and in the USA, a few other things:

    “We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.”

    “Promoting the general welfare” could arguably be called a mandate for health care reform right now.

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