President Barack Obama yesterday announced further restrictions on executives of banks that accept federal assistance, imposing the toughest curbs on a handful of institutions that were facing ruin until they were rescued by the U.S. Treasury's Troubled Asset Relief Program.
The severely troubled institutions include AIG, Citigroup and Bank of America. Pay for their senior executives will be capped at $500,000 annually. Executives still could receive restricted stock, but they could not cash the shares in unless the government loans were paid off or the financial institution met standards based on stability or other factors.
The banks also will have to put their pay practices to a nonbinding shareholder vote annually.
Similar restrictions will be imposed on banks that accept new money from the $700 billion TARP fund approved by Congress last fall. But they will be lifted if recipients disclose their pay practices and, if required, submit them to the nonbinding shareholder vote.
With the economy mired in a severe recession and public outrage growing over lavish pay and bonuses paid by some of the worst offenders, the curbs found support at both ends of the political spectrum.
"Corporate chieftains who run their companies into the ground should not be allowed to simultaneously shift the burden of their mistakes to taxpayers and expect multimillion-dollar pay packages," said Daniel J. Mitchell, a senior fellow at the Cato Institute.
The Washington, D.C., think tank traditionally embraces limited government. Mr. Mitchell said government meddling in business makes him nervous, but that this intervention might "discourage companies from sticking their snouts in the public trough."
Richard Ferlauto of the American Federation of State, County and Municipal Employees hailed the restrictions being applied to executives at AIG, Citigroup and Bank of America.
"Essentially, those companies have been nationalized and the American taxpayer is the owner of those companies now," the union official said. "Those rights should be extended to all shareholders across the board."
Mr. Obama also indicated he would propose a broader package of reforms on executive pay, leading some to conclude that pay practices outside the banking industry will eventually come under greater scrutiny.
"In a deep recession like this, lots of people are upset. It is quite easy politically to do these kinds of things," said Cornell University professor Kevin F. Hallock, an expert on executive pay.
Dr. Hallock noted executives eventually could earn more than $500,000 annually if their company's stock did well. He also wondered whether pay curbs would discourage talented executives from taking on the challenging assignment of rebuilding troubled banks.
The restrictions do not apply to most banks that already have received money from the $700 billion fund -- unless they go back for more. The U.S. Treasury has invested in 10 banks with operations in Western Pennsylvania, led by PNC Financial Services ($7.6 billion), Cincinnati's Fifth Third Bancorp ($3.4 billion), Bank of New York Mellon ($3 billion) and Huntington Bancshares of Columbus ($1.4 billion).
Huntington recently hired former Citizens Financial executive Stephen D. Steinour as chairman, president and chief executive officer at an annual salary of $1 million.
To put the $500,000 cap in perspective, current PNC Chairman and Chief Executive Officer James E. Rohr was last paid a salary of less than $500,000 in 1993, when he was president of the bank. His 2008 salary was $1 million.
PNC said last month that it did not expect to seek additional assistance. It declined comment on yesterday's announcement, as did Bank of New York Mellon.
Timothy Smith of Walden Asset Management in Boston called the restrictions "a huge change in the salary structure of any of the banks that have to live with it."
The Boston investment manager is part of a coalition of labor unions, public pension funds, religious groups and other institutional investors who are pushing "say on pay," the kind of nonbinding shareholder vote included in the regulations issued yesterday by the White House. Mr. Obama said he eventually would propose that the referendum be required for all companies.
"A wise company reads this handwriting on the wall," Mr. Smith said.
Len Boselovic can be reached at firstname.lastname@example.org or 412-263-1941.