Obama calls for $500,000 executive pay cap on bailout banks

This is from The New York Times:

WASHINGTON — The Obama administration is expected to impose a cap of $500,000 for top executives at companies that receive large amounts of bailout money, according to people familiar with the plan.

Executives would also be prohibited from receiving any bonuses above their base pay, except for normal stock dividends.

President Obama and Treasury Secretary Timothy F. Geithner plan to announce the executive compensation plan on Wednesday morning at the White House.

The new rules would be far tougher than any restrictions imposed during the Bush administration, and they could force executives to accept deep reductions in their current pay. They come amid rising public fury about huge pay packages for executives at financial companies being propped up by federal tax dollars.

Executives at companies that have already received money from the Treasury Department would not have to make any changes. But analysts and administration officials are bracing for a huge wave of new losses, largely because of the deepening recession, and many companies that have already received federal money may well be coming back.

That is not a bad idea. We've seen enough of Wall Street excesses, as corporate executives accept the government's bailout money, and then purchase corporate jets, redecorate corner offices, or hand out $18 billion bonuses to themselves. The latest corporate excess was Wells Fargo's upcoming party in Las Vegas for their mortgage officials, of which they then canceled due to negative criticism. I do not care if a public company wants to pay their CEOs, and other top officials, hundreds of millions of dollars in compensation--although I do believe that CEOs get paid way too much for their performance, or for their incompetence and failure to perform in their jobs. And I certainly know that there is a racket taking place between the CEOs, and the compensation boards of their companies, where the board members scratches each others' backs to make even more money for their own compensation packages in their own companies--regardless of performance. Companies have every right to pay their CEOs whatever compensation that the market is accepting, without any government interference or limits on such compensation. These companies will either succeed, or fail, due to the CEO's knowledge and experience within the company. I will accept that as the nature of the market.

However, when you have Wall Street CEOs coming to the government and asking for a bailout, due to their own incompetence or excessive gambling in the subprime mortgage market, they have lost their right to their own excessive compensation. If they are asking for money from the government to cover their company's losses, then they are going to have to accept a cap on their salaries, because now the American taxpayer is footing the risk of their company's future. These executives had screwed up their companies--they do not deserve their golden parachutes due to their own incompetence. You ask for a government loan, then you accept the strings attached to it. If you do not like it, then do not take the government bailout money at all, or quickly pay back the government bailout money. Then you can offer whatever compensation package you want for the company CEOs. Just do not expect a blank check coming from the government for Wall Street to do whatever the heck they want with their money. The NY Times lists some of the top CEO compensation packages from firms that are in serious trouble, and have taken the government bailout money:

Under the Treasury’s $700 billion rescue program, most companies that have received money so far have been considered “healthy” rather than on the brink of collapse.

But five of the biggest companies to get help — Citigroup, Bank of America and the American International Group, General Motors and Chrysler — were all facing acute problems. And top executives at those companies made far more than $500,000 in recent years.

Kenneth D. Lewis, the chief executive of Bank of America, took home more than $20 million in 2007. Of that, $5.75 million was in salary and bonuses.

Vikram Pandit, who became chief executive of Citigroup in December of 2007 and previously held other senior positions at the bank, made $3.1 million.

Richard Wagoner, the chief executive of General Motors, made $14.4 million, much of it in stock, options and other non-cash benefits. He earned a $1.6 million salary.

And how is Wall Street reacting to this cap on executive pay? According to the NY Times:

“That is pretty draconian — $500,000 is not a lot of money, particularly if there is no bonus,” said James F. Reda, founder and managing director of James F. Reda & Associates, a compensation consulting firm. “And you know these companies that are in trouble are not going to pay much of an annual dividend.”

Mr. Reda said only a handful of big companies pay chief executives and other senior executives $500,000 or less in total compensation. He said such limits will make it hard for the companies to recruit and keep executives, most of whom could earn more money at other firms.

“It would be really tough to get people to staff” companies that are forced to impose these limits, he said. “I don’t think this will work.”

Then fine--don't take the bailout money! If these Wall Street executives have run their companies into the ground, they shouldn't even get the $500,000 pay cap--they really should be fired from their companies without any golden parachutes! They screwed up, and they should pay for the consequences of their own actions.