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.
Bank of America
, 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.
The Treasury said that for future participants in the broader TARP program, it proposes a $500,000 executive pay limit unless the company publicly discloses a more generous package and shareholders approve it. The Treasury also proposed enforcement of clawback provisions, bans on golden parachutes and curtailment of luxury expenses.
Officials said that all companies taking government money must ensure compliance with executive compensation restrictions, and CEOs of such companies have to recertify with the Treasury annually.
Some Wall Street big-timers, including
CEO Lloyd Blankfein and
chief John Mack, declined bonuses for 2008.
on Tuesday foreshadowed the Obama administration's move, when it prohibited CEO Richard Fairbank from cashing out of stock awards until the government divests its TARP installment in the company.
Curbing compensation among financial firms comes as participants in bailout programs have occasionally raised eyebrows with their allocation of resources.
On Tuesday, a report by the
, which has received $25 billion in TARP funds, was planning a Las Vegas junket for its employees. Wells canceled the trip shortly after the report emerged.
last year faced criticism for sending its executives on lavish spa retreats shortly after receiving a government handout.
In January, former
CEO John Thain was ousted from
Bank of America
in part because he gave billions in bonuses to top employees ahead of BofA's purchase of Merrill. Merrill posted a fourth-quarter loss of $15.3 billion. Thain had earlier come under fire for requesting a $10 million 2008 bonus for his stewardship of Merrill.
BofA has to date received $45 billion in TARP funds and an additional $118 billion in government guarantees against assets related to its purchase of Merrill Lynch.