Congress wants to give the government a direct role in deciding how much executives on Wall Street are paid, after the nation's biggest banks accepted billions in taxpayer money and still managed to distribute $1 million bonuses to thousands of employees.
The House was expected to pass legislation today by Rep. Barney Frank, chairman of the House Financial Services Committee, that would ban "incentive-based" pay that could threaten the economy or viability of the institution.
The bill, which would give regulators nine months to hash out the details, would give the government unprecedented say in how private corporations reward brokers and traders.
Democrats said excessive salaries and bonuses risk harming the broader economy.
"The problem with executive compensation is essentially, from the systemic standpoint, that it gives perverse incentives," said Frank, D-Mass.
Without penalties for bad bets, the system means "heads you win, tails you break even," he said.
Aware of the bill's populist appeal, Democratic leaders left the vote as one of their final acts before adjourning for their monthlong summer recess.
Republicans opposed the bill in committee because they said it would give the government too much control over executive pay. But the top Republican on the Financial Services Committee, Rep. Spencer Bachus of Alabama, said he understands its attractiveness.
"Politically, it was very difficult for my members to stand up and fight this legislation," Bachus said after the committee endorsed the bill in a 40-28 vote along party lines.
The House turns to the legislation one day after New York Attorney General Andrew Cuomo concluded in a report that the nation's biggest banks, including
Bank of America Corp., Merrill Lynch & Co., JPMorgan Chase & Co. and
Goldman Sachs Group Inc., awarded nearly 4,800 million-dollar-plus bonuses in 2008.
Citigroup, which is now one-third owned by the government as a result of the bailout, gave 738 of its employees bonuses of at least $1 million, even after it lost $18.7 billion during the year, Cuomo's office said.
The New York-based bank received $45 billion in government money and guarantees to protect it against hundreds of billions of dollars in potential losses from risky investments.
Bank of America, which also received $45 billion in government money, paid $3.3 billion in bonuses, with 172 employees receiving at least $1 million and the top four recipients receiving a combined $64 million. Merrill Lynch, which Charlotte, N.C.-based
Bank of America acquired during the credit crisis, paid out $3.6 billion, including a combined $121 million to four top employees.
"This egregious behavior proves that Wall Street still doesn't get that times have changed and the old way of paying executives is long gone," said Rep. Edolphus Towns, D-N.Y., chairman of the House Oversight and Government Reform Committee.
President Barack Obama has proposed trying to discourage excessive corporate pay by giving shareholders a nonbinding vote on compensation packages and requiring that compensation committees not have financial relationships with the company and its executives.
Frank embraced the proposal in his legislation, but added the provision banning risky incentives. Firms with less than $1 billion in assets would be exempt.
While the legislation would apply to the broader financial community, firms that have accepted hefty federal bailouts already are under tougher restrictions. Obama has appointed Kenneth Feinberg, a lawyer who oversaw payments to families of victims of the Sept. 11, 2001, terrorist attacks, to monitor compensation at those companies and reject pay plans he deems excessive. Feinberg's authority does not cover compensation before this year.
