President Barack Obama took on bailed-out Wall Street firms today, setting a $500,000 annual cap on executive pay for companies getting taxpayer funds and tapping popular anger over financial sector excesses.
Mr Obama said more such measures were planned in efforts to overhaul the crisis-hit US financial sector that has been bailed out with billions of dollars of public funds.
He won support in Washington, including from some Republicans who were critical of the financial sector bailout in the first place. But Wall Street critics said the pay cap was a political gambit that could prompt a talent flight from affected firms.
Mr Obama said his administration would not allow public money to be wasted on payouts for corporate executives whose businesses spurred the financial and economic crisis.
"In order to restore our financial system, we've got to restore trust. And in order to restore trust, we've got to make certain that taxpayer funds are not subsidizing excessive compensation packages on Wall Street," Mr Obama said.
"For top executives to award themselves these kinds of compensation packages in the midst of this economic crisis is not only bad taste - it's bad strategy - and I will not tolerate it as president."
Separately from the financial sector rescue program, treasury secretary Timothy Geithner said he would give details next week of a "comprehensive plan for financial recovery". Mr Obama is trying to push a broad stimulus package worth nearly $900 billion to try to jolt the economy out of recession.
Wall Street analysts and observers critical of the pay cap said affected finance executives might just vote with their feet. Some accused Mr Obama of playing to the crowd.
"This is pure political grandstanding. If the limit has bite, it will be counterproductive and the unintended consequences will hurt the US as skilled and bright senior managers make choices," said David Kotok, chief investment officer at Cumberland. "If the limits have loopholes, they are a sham. Industrial policies fail. So will this one."
The restrictions announced were likely to be popular with average Americans who have been reeling from job losses and financial worries as the recession bites. New York officials reported last week that Wall Street companies paid $18.4 billion in bonuses to employees last year even though the government had to intervene to save the sector from collapse.
Mr Obama's move came followed a set-back yesterday when his pick for health secretary withdrew over income tax problems. The president said that he "screwed up" over the issue.
Apparently aiming at critics worried about Washington meddling in the market, MR Obama said his pay cap move was not an assault on wealth. "This is America, we don't disparage wealth ... what gets people upset, and rightfully so, is executives being rewarded for failure. Especially when those rewards are subsidised by US taxpayers," he said.
European Union finance ministers have said managers of bailed-out European banks should "not retain undue benefit," but they imposed no specific limit. Germany plans to set a €500,000 pay limit for executives at rescued banks as well as a ban on bonuses and stock-option grants.
An Obama administration official said the new US rules would require companies that get exceptional government funds in future to abide by the cap. Additional compensation must be limited to restricted stock that does not vest until government money is paid back with interest, according to the new rules.
Companies that have previously received bailout money - such as Citigroup and AIG - would have to agree to stricter oversight and prove they have followed already established limits on executive compensation, which are widely seen as being too lax.
Reuters