WASHINGTON — Talking tough but stepping gently, the Obama administration rejected direct intervention in corporate pay decisions Wednesday even as officials argued that excessive compensation in the private sector contributed to the nation’s financial crisis.
Instead, the administration plans to seek legislation that would try to tame compensation at publicly traded companies through shareholder pressure and less management influence on pay decisions.
At the same time, the administration drew a sharp line between the overall corporate world and those institutions that have tapped the government’s $700 billion Troubled Asset Relief Program.
The administration issued new regulations Wednesday that set pay limits on companies that receive TARP assistance, with the toughest restrictions aimed at seven recipients of “exceptional assistance”: Citigroup, Bank of America, General Motors, Chrysler, AIG, GMAC and Chrysler Financial.
The regulations limit top executives of companies that receive TARP funds to bonuses of no more than one-third of their annual salaries. But in a significant expansion of authority, the regulations call for a special compensation overseer who will burrow into the pay practices of some of the country’s biggest enterprises.
The administration named Kenneth Feinberg, a lawyer who oversaw payments to families of victims of the Sept. 11, 2001, terrorist attacks, as a “special master” with power to reject pay plans he deems excessive at the seven companies with the biggest injections of public money. Feinberg also would have authority to review compensation for the top 100 salaried employees at those firms.
The tempered broader approach to executive pay wasn’t immediately embraced on Capitol Hill, where a leading Democrat said he wants to go further.
In a lengthy statement released after the White House announcement, House Financial Services Committee chairman Barney Frank said he wants legislation that would instruct the Securities and Exchange Commission to ban company boards from rewarding excessive risk-taking.
“It is not the government’s business to discourage risk-taking,” said Frank, D-Mass. “But neither should we allow systems which have existed up until now whereby decision-makers are handsomely rewarded if they take big risks that pay off but suffer no penalty whatsoever if those risks result in losses to the company.”
In the broader private sector, the administration chose to use public pressure and the potential for embarrassment rather than direct pay restrictions.
“We do not believe it’s appropriate for the government to set caps in compensation,” Treasury Secretary Timothy Geithner said.
