Thursday, February 5, 2009

Corporate Salary Caps: Reading the Fine Print

The Obama admnistration yesterday announced that it would impose a $500,000 cap on executive salaries at institutions that participate in TARP -- known affectionately as the "bailout." The policy comes after the public became outraged over reports of corporate jets, high salaries and other "shocking" details (yes - sarcasm) and lavish spending among TARP participants.

The Department of Treasury released an official statement of the policy. Here are some highlights.

The salary cap is mandatory only for executives at institutions that receive "extraordinary" assistance, or bank-specific agreements with the government, rather than the generalized assistance available to all banks. This is a smaller subset of TARP participants.

General TARP participants can waive the $500,000 salary restriction -- if they make the salaries public and explain why they are not excessive.

The salary cap does not include restricted stock awards.

Stock awards cannot vest until after the company has paid the government in full, plus interest -- or (a major exception) "after a specified period according to conditions that consider among other factors the degree a company has satisfied repayment obligations, protected taxpayer interests or met lending and stability standards." Translation: If the company becomes healthy again, the executives can get their stock awards.

My favorite is the anti-plane rule (my language). This do-nothing provision purports to establish policy related to "aviation services, office and facility renovations, entertainment and holiday parties, and conferences and events." The companies' boards of directors must adopt policies on these matters and place them on their webpages.

Oh, and these requirements do not apply retroactively to current TARP participants.

Update: LA Times article reports that corporate watchdogs say policy is pretty weak.


FLRN said...

Okay Darren - I will "planely" speak my truth here - There is nothing wrong with being rich - ask Oprah or John Travolta whom seem to be surviving the economic storms and commuting on their planes just fine! I do not like the current position of the president on redistributing the wealth and I also do not believe that a weak or strong policy against corporate extravagant spending is going to be effective or enforceable.
A bailout is just an inverted reflection of a tax credit - so why all the drama? In contrast, excesses by corporate giants bailed out with my tax dollars is offensive period - whether they take a car, a plane or catch a train (sounds like a song hmmm). If you give them one dollar or a few billion this is "extraordinary" from my perspective...So let's be realistic here caps or no caps - greed is greed if we are going to assign rules why not just assign a "parent" government oversight "light" team to come in and embed within the "greedy and needy" organization to "assume" control of the organization - Federalize the program until stable - This type of thinking is more than Marx here, but I am getting tired of passing the plate to shore up industries that really should fail during this correction least we begin to throw good money after bad in a way that makes the whole mess worse. Half measures are not going to cut it. Where are all the thinkers????

Salaries of T Mobile workers said...

I am in favor of the corporate salary caps. You should be too.

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