The Obama administration will unveil executive pay rules for firms receiving government aid by the end of the week and will name a pay czar with power to reject compensation plans at firms getting exceptional assistance, an administration official said late on Tuesday.
In the case of a company receiving exceptional assistance, the special master would have the authority to disapprove of a company's compensation plan if he determined they were paying excessive and unjustified salaries to their top executives, the official said.
In early February, the administration had said it would put a $500,000 per year cap on the salaries of executives whose firms were being supported with money from the government's $700 billion rescue fund. Any compensation above that amount was to have been in restricted stock or a similar long-term bonus incentive.
Officials determined that plan was not optimal after Congress passed legislation requiring that bonuses account for no more than one-third of an executive's compensation. If coupled with the administration's planned salary cap, that would limit annual compensation to $750,000.
The official said the congressional limit on bonuses led the administration to find an alternative way to try to ensure pay practices were not excessive at companies most heavily reliant on government bailout money, such as Bank of America
Kenneth Feinberg, who oversaw compensation to the survivors of the September 11, 2001, terror attacks, would be given the role of pay czar, according to a source familiar with the administration's plan.
President Barack Obama has argued that Wall Street's pay structures were short-sighted and pushed banks to take excessive risks that led to the financial crisis which has pushed much of the world into recession.
U.S. Treasury Secretary Timothy Geithner, who has said compensation practices became divorced from reality, will meet on Wednesday to discuss bank pay with Securities and Exchange Commission Chairman Mary Schapiro, Federal Reserve Governor Daniel Tarullo and other compensation experts.
While the administration had been expected to lay out its new rules on Wednesday, Geithner is only slated to make brief public remarks during the open portion of that meeting.
The administration official said late on Tuesday night that the new rules to be outlined this week would apply to the top five senior executive officers at companies supported by the Treasury Department's Troubled Asset Relief Program, or TARP, plus the next 20 highly paid employees, whether or not they serve in an executive role.
In addition to the new rules for TARP recipients, the administration is pushing a broader effort to influence pay practices across the financial industry at large.
The Federal Reserve has said it plans to use its authority to promote healthier compensation structures, and Geithner told lawmakers on Tuesday that the SEC may seek new powers that would allow it to encourage compensation reform at publicly traded companies.
As you'll hear from us in the next few days, the SEC has some important responsibilities and obligations in this area, and some tools and authorities they may seek, Geithner told a Senate Appropriations subcommittee.
(Additional reporting by Karey Wutkowski, Editing by Sandra Maler)