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Obama Unveils Pay Curbs

Stocks in this article: BAC WFC COF

Updated from 12:04 p.m. EST

President Barack Obama on Wednesday announced a plan to cap executive pay at companies that participate in the Treasury Department's bailout program for the financial sector.

Speaking at a press conference in Washington, D.C., Obama said that compensation for top executives would be capped at $500,000, "a fraction of the salaries that have been reported recently." Obama also said that compensation in excess of $500,000 would be payable in stock that cannot be issued until companies repay the government for bailout money. In addition, firms will have to publicly disclose and justify perks and privileges awarded to employees.

"What gets people upset, and rightfully, so are executives getting rewarded for failure," Obama said. "We're going to be demanding some restraint in exchange for federal aid."

Treasury Secretary Timothy Geithner said that the compensation limits were part of a series of substantial reforms needed to restore confidence in the financial system.

Going forward, companies that are receiving "exceptional" government assistance will receive aid with additional strings, including the $500,000 cap on executive salaries, Treasury detailed after Obama's announcement. Additional pay must be made in the form of restricted stock that vests when the TARP funds have been paid back. Furthermore, these companies will have to disclose compensation structures and give shareholders additional input into executive pay.

The Treasury initiative also requires "clawback" provisions for executives engaged in deceptive practices, strengthens bans on golden parachutes and curtails excessive perks and expenses.

Do you think the government should limit pay for executives of federally assisted financial institutions?


AIG (AIG), Citigroup (C) and Bank of America (BAC), which have received government assistance under the Targeted Investment Program, are examples of companies receiving exceptional aid, the Treasury said. But the new rules will not be retroactive and, thus, does not currently affect them.

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