Goldman, JPMorgan Won’t Feel Effects of Executive-Salary Caps
By Matthew Benjamin and Christine Harper
Feb. 5 (Bloomberg) -- Executives at Goldman Sachs Group Inc., JPMorgan Chase & Co. and hundreds of other financial institutions receiving federal aid aren’t likely to be affected by pay restrictions announced yesterday 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, 47, “is not proposing to go back and get that $18.4 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.
In addition, 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 back, you can be sure that the stock will have risen hugely.”
According to the new guidelines, announced at the White House yesterday 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 Inc. last November or to Bank of America Corp. in January, would be limited to annual compensation -- salary plus bonus -- of $500,000.
Other perks that enraged Americans -- such as a $1.2 million office redecoration by the chief executive of Merrill Lynch & Co., which took $10 billion in government funds, or a four-day Las Vegas junket for executives at Wells Fargo & Co., which accepted $25 billion -- will be subject to new disclosure rules.
A White House official called it the name-and-shame provision, based on the idea that banks would limit such benefits if forced to disclose them.
“For top executives to award themselves these kinds of compensation packages in the midst of this economic crisis is not only in bad taste, it’s a bad strategy, and I will not tolerate it as president,” Obama said yesterday.
Yet none of the new rules will apply to any firm until it negotiates an extraordinary deal with the federal government to remain solvent.
Got me with that one, Mr. Obama. Guess I'll be adding you to this poster. Fool me once...