KEY POINTS:
Executives at Goldman Sachs Group, JPMorgan Chase and hundreds of financial institutions receiving federal aid aren't likely to be affected by pay restrictions announced this week by President Barack Obama.
The rules, created in response to growing public anger about the record bonuses the financial industry doled out last year, will apply only to top executives at companies that need "exceptional" assistance in the future.
The limits aren't retroactive, meaning firms that have already taken Government money won't be subject to the restrictions unless they have to come back for more.
The new guidelines are the first salvo in a broader financial-rescue plan Obama plans to announce next week. The President and Congress have had to defend billions in aid to banks that continue to provide generous bonuses and luxury perks while posting record losses.
Pay caps may provide the political cover the Administration needs to deliver additional infusions of capital into the financial sector that may be necessary.
Some analysts said the new rules wouldn't have much effect.
Obama "is not proposing to go back and get that US$18.4 billion ($35.9 billion) in bonuses back," Laura Thatcher, head of law firm Alston & Bird's executive compensation practice in Atlanta, said of the cash bonuses New York banks paid last year, the sixth-biggest haul in history. "Right now, we have not clamped down" on pay at banks.
Some executives may be compensated for the potential reduced salaries with restricted stock grants, which may result in huge paydays after the bank repays the Government assistance with interest.
"They're just allowing companies to defer compensation," said Graef Crystal, a former compensation consultant and author of The Crystal Report on Executive Compensation. The restrictions are "a joke," he said, because "if the Government is paid pack, you can be sure that the stock will have risen hugely."
According to the new guidelines, announced by Obama and Treasury Secretary Timothy Geithner, senior executives at banks that negotiate "exceptional assistance" deals with Treasury, such as the targeted relief provided to Citigroup last November or to Bank of America in January, would be limited to annual compensation - salary plus bonus - of $500,000.
- BLOOMBERG
