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(Limited) Executive Pay Limits Slipped into Stimulus

After a day of haggling, a provision to limit bonuses to top executives of bailed-out banks was tucked into the stimulus last night. But for bankers who might

Jul 31, 2020
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After a day of haggling, a provision to limit bonuses to top executives of bailed-out banks was tucked into the stimulus last night. But for bankers who might be sweating this morning, don’t fret — there are plenty of loopholes. The yacht is safe.
Sponsored by Sen. Christopher Dodd (D-Conn.), chairman of the Senate Banking Committee, the measure bans bonuses and other incentive-based payments to the highest-paid executives at all companies benefiting from the Troubled Asset Relief Program, or TARP.
The Dodd provision goes further than pay restrictions announcedby the Obama administration earlier this month (which apply only to companies receiving “exceptional assistance” under TARP). Still, bailed-out banks will have plenty of opportunity to pay their executives handsomely, even as they accept enormous sums from the federal government.
For example, the Dodd provision sets its bonus-ban based on a sliding scale relative to the amount of help each company receives. For firms accepting less than $25 million from TARP, the ban applies to only the top-paid executive (singular). For banks accepting between $25 and $50 million, the ban extends to the five top-paid executives. Etc. If firms take more than $500 million, the top 20 executives fall under the ban.
Considering the news this weekthat Merrill Lynch, before being sold to Bank of America in December, paid 149 employees bonuses exceeding $3 million (total: $858 million), the Dodd provision would do little to stem the practice. Indeed, nearly 700 Merrill employees were compensated more than $1 million in 2008, despite the company’s $27 billion loss, The New York Times pointed out Thursday.
The Dodd provision will also “clawback” bonuses from the top executives if those bonuses were based on financial statements “found to be materially inaccurate.” The clawback language will apply only to the top 20 executives. All other bonuses based on inaccurate filings are safe.
Aside from the Dodd provision, two other amendments to crack down on executive pay for TARP recipients — both more strict than the Dodd measure — were in consideration to be included in the stimulus. One would have set a compensation ceilingof $400,000; the other would have forcedcompanies to reimburse Washington for any 2008 bonuses in excess of $100,000.
Both were removed during conference negotiations.
So much for our grand meritocracy.
Dexter Cooke

Dexter Cooke

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Dexter Cooke is an economist, marketing strategist, and orthopedic surgeon with over 20 years of experience crafting compelling narratives that resonate worldwide. He holds a Journalism degree from Columbia University, an Economics background from Yale University, and a medical degree with a postdoctoral fellowship in orthopedic medicine from the Medical University of South Carolina. Dexter’s insights into media, economics, and marketing shine through his prolific contributions to respected publications and advisory roles for influential organizations. As an orthopedic surgeon specializing in minimally invasive knee replacement surgery and laparoscopic procedures, Dexter prioritizes patient care above all. Outside his professional pursuits, Dexter enjoys collecting vintage watches, studying ancient civilizations, learning about astronomy, and participating in charity runs.
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