Oh, those sneaky congressmen. This group receives automatic pay raises every year. Yet, they jerked the compensation cap of senior corporate executives from President Obama's financial sector bailout plan and inserted it in the $789 billion stimulus package for his expected signature next Tuesday.
It begs the question: Since when does cutting a banker's earnings stimulate the economy? And, God forbid, what business is it of Congress to establish compensation guidelines in the private sector? (Okay, some irresponsible, me-first corporate executives paid out $18 billion in bonuses from taxpayer bailout funds infused to keep their companies solvent. I get it.)
How did this happen? Simple. Guess how many of the 545 House members and senators read all the 1,100-page stimulus bill in the 24-hour-to 48-hour deadline imposed on them before voting? My guess is zero.
Obama's proposal was to cap compensation at $500,000 for "senior" executives while allowing them to receive stock they could not sell until the company repaid its entire federal bailout largess. This plan, for financial companies receiving the second dole of the $750 billion bailout, penalized the bosses but failed to address the larger issue of bonuses to the real income-producers, the brokers.
Congress certainly closed that loophole, according to a story in Saturday's Washington Post.
The bill limits bonuses for executives at all financial institutions receiving government funds to no more than a third of their annual compensation. The bonuses must be paid in company stock that can be redeemed only when the government investment has been repaid. Unlike the rules issued by the White House, the limits in the stimulus bill would apply to top executives and the highest-paid employees at all 359 banks that have already received government aid.
The bonus restrictions would apply to a varying number of employees at each firm, depending on how much money the firm has taken in government assistance. At banks receiving less than $25 million, the limits would apply to only the highest-paid employee. For those receiving $25 million to $250 million, the restriction would apply to the five highest-paid employees. The top five executives and ten highest-paid employees would be affected at firms receiving $250 million to $500 million.
At firms getting more than half a billion dollars, which would include all of the Wall Street giants, the rules would apply to the top five executives and the 20 highest-paid employees. Taxpayers have injected $45 billion each into Citigroup and Bank of America.
Other measures in the bill include a ban on golden parachutes to departing executives. This would apply to the top 10 most highly-paid employees at all financial institutions currently receiving government aid. The measure allows companies to continue to pay out deferred compensation and benefits such as pensions. There are billions of dollars in such awards on the books of financial institutions.
"This is a big deal. This is a problem," said Scott Talbott, chief lobbyist for the nation's largest financial services firms. "It undermines the current incentive structure."
Talbott said banking executives are concerned that some of the most highly paid employees, such as top traders, who bring in hefty sums for the company, would flee to hedge funds or foreign banks that have not accepted U.S. government funds.
Bonuses make up much of financial executives' take-home pay, so the new rules could significantly diminish their compensation.
For example, Goldman Sachs chief executive Lloyd Blankfein made $68.5 million in 2007 -- a Wall Street record -- but $67.9 million of that was in bonus and other incentive pay that analysts said would be subject to the new rules.
Citiggroups's top executive, Vikram Pandit, has voluntarily agreed to a $1 salary until his company returns to profitability. In theory, this means that Pandit would be allowed an annual bonus of pennies.
Critics of excessive executive pay assert that companies have always found ways around compensation rules.
"Congress missed a huge opportunity to set a strict and measurable limit on executive pay," said Sarah Anderson, a director at the Institute for Policy Studies in Washington. "I'm afraid companies will find ways to shift compensation to other pots and continue to make massive payouts that have so outraged the American people."
The public outrage erupted as a result of the gulf that widened the last 20 years between executives and employees share of company earnings, triggered in some part by the declining status of labor unions.
Meanwhile, Congress casts a blind eye to the more than 3 million constituents who have lost their jobs as they took a $4,700 pay raise at an additional $2.5 million for lawmakers' salaries last December.
The raises are automatic and require a vote only to freeze or lower the salary schedule. According to The Hill watchdog newspaper of Congress:In the beginning days of 1789, Congress was paid only $6 a day, which would be about $75 daily by modern standards. But by 1965 members were receiving $30,000 a year, which is the modern equivalent of about $195,000.
Currently the average lawmaker makes $169,300 a year, with leadership making slightly more. House Speaker Nancy Pelosi (D-Calif.) makes $217,400, while the minority and majority leaders in the House and Senate make $188,100.
Still, Steve Ellis, vice president of the budget watchdog Taxpayers for Common Sense, said Congress should have taken the rare step of freezing its pay, as lawmakers did in 2000.
“Look at the way the economy is ... they’re just happy to have gainful employment,” said Ellis. “But you have the lawmakers who are set up and ready to get their next installment of a pay raise and go happily along their way.”
Ellis said that while freezing the pay increase would be a step in the right direction, it would be better to have it set up so that members would have to take action, and vote, for a pay raise and deal with the consequences, rather than get one automatically.