The Obama administration’s move Wednesday to rein in lavish pay and other perks for bank executives pursuing future taxpayer bailouts was met with mixed reviews from bank leaders and corporate governance experts.
A good idea. Too narrow. Goes too far.
Those were immediate reactions to the measures announced by the Treasury to cap executive compensation at $500,000 and restrict additional stock payments for the corporate chiefs until after the government is paid back.
Some observers said the reforms engender more questions than answers.
At least one Denver-area bank executive gave a thumbs-up to the effort: “I’ve been a little appalled about how the big banks handled government funds last year — it feels very disingenuous,” said Leslie Mitchell, president of FirstBank of Cherry Creek, who added that her salary doesn’t eclipse $500,000. “I’m all for the rules.”
Others fear the limits could backfire, sending a chill through the upper echelons of financial institutions that discourages them from going after available Troubled Asset Relief Program funds intended to shore up banks’ health.
The pay curbs also could send industry executives who excel at corporate turnarounds scurrying for better-paying jobs.
“That’s a real risk,” said J. Robert Brown, a University of Denver law professor specializing in corporate governance. “If you’re being approached by another bank with a million-dollar offer, why wouldn’t you take it?”
Steve Bangert, chief executive of Denver’s CoBiz Financial, one of only two Colorado banks so far scoring a share of TARP funds, said he had no major problem with the existing executive-compensation limits placed upon his business with the earlier round of TARP funds.
Those guidelines limited golden parachutes and removed tax deductions on senior bosses’ compensation above $500,000. Since Bangert’s salary surpassed that amount, the company lost a $22,000 deduction.
However, the more stringent requirements, which won’t apply to CoBiz, may go too far, he said.
“I think we need to be a little bit careful,” he said.
“A lot of those people have ended up at institutions because of their ability to make quite a bit of money and likely will end up making money somewhere else.”
Peter Miterko, an executive-pay consultant at Hewitt Associates, countered that view. Banks, he said, should shrug off the new standards. Financial institutions, after all, routinely confront “reasonable” conditions when they seek private financing.
“Private lenders basically say, we’ve got debt covenants and you pay them back under these certain terms,” Miterko said. “There are all kinds of strings. The government’s strings aren’t any more oppressive.”
He also praised the “say-on-pay” provision that requires executive compensation to be fully disclosed and subject to a shareholder resolution.
“We’ve had it in Australia and the U.K.,” he said. “It’s not this monstrous thing; it’s something you learn to live with.”
Brown, the Denver professor, said he agrees with the need for executive compensation limits but feels they shouldn’t be tailored to only economic-stimulus recipients.
“The better solution for ‘say on pay’ and some of these other measures is to implement it across all industry,” Brown said.
“What we need to hear from the Obama administration is a broader solution.”
Miles Moffeit: 303-954-1415 or mmoffeit@denverpost.com
