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- Dubai 05:25 06:38 12:34 15:53 18:24 19:38
The United States Congress voted to restrict bonuses and other forms of pay for top managers at banks and companies getting taxpayer help under the government's $700 billion (Dh2.57 trillion) financial industry bailout.
Firms being assisted under the Treasury Department's Troubled Asset Relief Programme (Tarp), would be affected by the pay curbs. The Tarp was launched in October by the Bush administration as an effort to stabilise the financial system.
The curbs were drawn up by Senator Christopher Dodd, Chairman of the Senate Banking Committee. They would ban compensation incentives that encourage senior managers "to take unnecessary and excessive risks that threaten the value" of a company.
"Golden parachute" severance packages for top executives at Tarp beneficiaries would be prohibited. So would pay plans that "encourage manipulation of the company's reported earnings."
Bonuses would be limited for senior executives and the top 20 employees at firms getting more than $500 million from Tarp; senior executives and the top 10 employees at firms getting $250m to $500m; and smaller groups of managers at firms getting less than $250m in graduated increments.
"The decisions of certain Wall Street executives to enrich themselves at the expense of taxpayers have seriously undermined public confidence in efforts to stabilise the economy," Dodd, a Connecticut Democrat, said in a statement. "These tough new rules will help ensure that taxpayer dollars no longer effectively subsidise lavish Wall Street bonuses."
Shortly after the Tarp began, questions arose about what was happening to the money being injected into banks by the Treasury Department through preferred share purchases.
Reports surfaced of large executive bonuses, expensive travel and buyouts of other banks, with few signs evident that Tarp recipients were lending out the money in order to get stalled credit markets moving again and revive the economy.
The Treasury has committed more than $500bn under the Tarp to assist many companies, including the banks Citigroup Incorporated, Bank of America Corporation, Bank of New York Mellon Corp, and Goldman Sachs Group Inc. Insurer American International Group and automakers General Motors Corp and Chrysler have received Tarp aid. So have banks JPMorgan Chase, Wells Fargo, Morgan Stanley and many others.
At a House Financial Services Committee hearing last week, the chief executives of eight large banks defended their use of Tarp funds, although some lawmakers remained sceptical about the beneficial impact of the bailout programme.
Under Dodd's amendment, Treasury could "claw back" past pay and bonuses from top managers at Tarp firms if the compensation was awarded wrongfully or based on inaccurate criteria.
In addition, "say on pay" rules would be imposed on Tarp firms to give shareholders more influence on pay decisions.
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