U.S. officials on Thursday took aim at generous executive pay packages, saying it was offensive that firms receiving substantial taxpayer aid paid their officers and other top employees so lavishly.
The Federal Reserve issued guidelines to rein in the compensation of bankers to discourage the type of excessive risk-taking officials say contributed to the financial crisis that helped push the U.S. economy into a deep recession.
That move comes as a complement to steps Kenneth Feinberg, the man in charge of monitoring pay at firms that received the most government aid, was set to issue later on Thursday to curb compensation at seven companies, including American International Group Inc.
Speaking of Feinberg, President Barack Obama said, He's taken an important step forward today in curbing the influence of executive compensation on Wall Street while still allowing these companies to succeed and prosper, but more work needs to be done.
U.S. Treasury Secretary Timothy Geithner said Feinberg had done a commendable job.
We gave him the difficult task of cutting excessive pay, striking a balance between compensation and risk taking, and keeping strong management teams in place to help the companies recover -- all in the public interest, he said.
The Obama administration is eager to show that it understands public outrage over generous bonuses paid to employees at firms that received billions of dollars in public aid, particularly when the U.S. unemployment rate is nearing 10 percent.
Anger boiled over in March when AIG handed out fat bonuses just months after accepting tens of billions of dollars in government aid.
More recently, news that Goldman Sachs had set aside $16.8 billion for compensation, so soon after repaying $10 billion in taxpayer money, fueled concerns that Wall Street was already returning to the lavish pay practices that were commonplace before the financial crisis struck.
The companies themselves argue that without generous pay and bonuses, they cannot attract and retain the best workers and will lose out to competitors in less regulated markets.
The Fed said pay practices should reward performance, and firms must take care not to pay out large short-term bonuses on longer-term investments that could later prove disastrous for the company and the economy.
It said it would review compensation practices at the largest financial firms, but stopped short of setting pay caps or outlawing any specific practices.
Banking organizations too often rewarded employees for increasing the firm's revenue or short-term profit without adequate recognition of the risks the employees' activities posed to the firm, the Fed said in its guidelines.
The central bank is looking for input on more specific rules about how much pay should be in the form of deferred compensation and how much in cash.
(Writing by Emily Kaiser and Tim Ahmann; Editing by Kenneth Barry)