The Easily Removed Cap
I always considered the $500,000 executive pay cap for firms who receive TARP money to be a symbolic gesture and woefully inadequate in the face of what the White House was considering doing to bail out these companies. Now it appears that even the cap itself is symbolic:
Pair that with this, from the regulations themselves:
These new standards will not apply retroactively to existing investments or to programs already announced such as the Capital Purchase Program and the Term Asset-Backed Securities Loan Facility.
And this from the existing terms of the CPP:
The maximum amount of capital eligible for purchase by the Treasury under the CPP is the lesser of (i) an amount equal to 3 percent of the Total Risk-Weighted Assets of the applicant or (ii) $25 billion.
And it sounds as if some big banks will still be eligible for tons of money without having to defer a penny’s worth of compensation for their top executives. Good times.
This actually exempts most major firms, not just some banks. And there are no claw-back provisions to get the bonuses or any retroactive pay. Guess the TARP-receiving banks got their money's worth with that $114 million in lobbying and campaign contributions. I'm assuming the "scrutiny" of corporate perks like private jets and such will be similarly riddled with loopholes. The same for the Senate's efforts, though at least in theory they'd be better.
But Sen. Claire McCaskill's (D-MO) executive-pay cap bill is retroactive, applying to companies that have received past as well as pending bailout infusions. And McCaskill just said she has no intention of giving up her push to attach her version of CEO pay caps to the economic stimulus bill. Here's her statement:
"Everyone is on the right track here. I'm proud the president made this announcement in terms of the rules changing. I'm gratified that my colleagues also agreed that something must be done to restore the confidence of the American people that we have some idea of what's going on. I stand willing and ready to work with everyone to change the arrogant, greedy culture that created this mess in the first place."
McCaskill's office added that she would still push her CEO pay proposal "as a fallback assurance" that the new Treasury Department rules would be heeded. Sen. Bernie Sanders (I-VT), another leader on the executive-pay issue, also weighed in to call Obama's move "a good step forward, but we have to go further."
Late Late Update: Sens. Olympia Snowe (R-ME) and Ron Wyden (D-OR) aren't giving up either; they just announced plans to offer an amendment forcing bailed-out companies to repay already distributed executive bonuses that exceed $100,000. The subtle message from Congress to the administration on these executive pay caps seems to be, "Good start -- but not enough for us."
That sausage-making process has just begun, so it remains to be seen if it'll be as seemingly worthless as the Obama-Geithner rule. And yes, I see the hand of Summers in this.