For Immediate Release
Executive Pay Experts Critique Financial Bailout Bill
Institute for Policy Studies analysts say bill falls short on CEO pay
WASHINGTON - The draft bailout bill
yesterday contains several historic provisions that represent positive
toward ending taxpayer subsidies for executive pay. But the bailout
falls short on CEO pay - by failing to set a specific limit on the
of top executives at bailed-out companies.
The bill applies two different sets of executive compensation criteria,
depending on whether the government negotiates directly with the
purchase troubled assets or whether it purchases them through auction.
SUMMARY OF EXECUTIVE PAY PROVISIONS:
No limits on pay
No criteria on clawbacks.
Major shortcoming: No set limits
bill provision on executive pay merely directs Treasury Secretary Henry
to prevent "incentives" that encourage executives "to take unnecessary
excessive risks that threaten the value of the financial institution."
In other words, a bailed-out bank board of directors would be perfectly
funnel $10 million into its CEO's pockets - unless Paulson decides that
poses an excessive risk to the institution. The draft legislation, the "Emergency
Economic Stabilization Act of 2008," does not define what might
an "unnecessary and excessive risk."
"Congress missed a golden opportunity to use the leverage of the
bailout to put
tough controls on an out-of-control executive pay system," says IPS
Economy Project Director Sarah Anderson. "Without clear limits on pay,
public is being asked to put their trust in Secretary Paulson, a man
hundreds of millions of dollars as a Wall Street CEO, to decide what's
executives at the
current compensation level of the U.S. President: $400,000. Rep. Henry
(D-Calif.) had proposed a $2 million cap,
while Rep. Brad Sherman (D-Calif.) had advocated a $1
million cap on "plain vanilla" salary compensation.
The Institute for Policy Studies favors a lid on CEO pay set at 25
pay of a bailed-out company's lowest-paid worker. The
current top federal paycheck - the
President's $400,000 annual compensation - represents about 25 times
the pay of
the federal government's lowest-paid employee.
"The most respected business thinker of the 20th century,
Drucker, considered the 25-to-1 ratio be the appropriate standard for
private sector as well," notes IPS Associate Fellow Sam Pizzigati. "Pay
too wide, management experts like Drucker believe, undermine enterprise
effectiveness and efficiency."
The Institute will be urging the Congress and President who take office
January to better define the bailout bill's limits on executive pay.
THE BAILOUT'S POSITIVES ON CEO PAY
Ban on "golden parachutes": Senior executive officers will not
severance payment if they leave the company that's getting bailout
Congress is right to ensure that executives who drove the country into
mess should not be allowed to walk away with massive payoffs.
Cap on tax deductibility: Firms that participate in the bailout
be allowed to deduct executive pay that exceeds $500,000 per year from
corporate income taxes. The current tax code places a $1 million cap on
deductibility for executive compensation, but this provision has been
meaningless in practice because it allows exceptions for
pay. Most companies simply limit top executive salaries to around $1
and then add on to that total various assortments of
bonuses, stock awards, and other long-term compensation. The draft
attempts to close this loophole by eliminating that exception for
Clawback: Executives of bailed-out firms who receive bonuses or
awards that later turn out to be based on "materially inaccurate"
reports will need to give that money back. This hardly seems
something that would need to be legislated, but when it comes to
Congress is right to not rely on executives to voluntarily give up
BROADER CRITIQUE OF THE BAILOUT BILL
Sarah Anderson is the Director of the Global Economy Project at the Institute for Policy Studies and a co-author of 15 IPS annual reports on executive compensation. Contact: email@example.com, tel: 202 234 9382 x 227.
Chuck Collins is a senior scholar at the Institute for Policy Studies where he directs the Program on Inequality and the Common Good. He was a co-founder of United for a Fair Economy, and his latest book, the co-authored The Moral Measure of the Economy, appeared earlier this year. Contact: firstname.lastname@example.org, 617 308 4433.
Sam Pizzigati is an Associate Fellow of the Institute for Policy Studies and the author of Greed and Good: Understanding and Overcoming the Inequality That Limits Our Lives (Apex Press, 2004). He edits Too Much, on online weekly on excess and inequality. Contact: email@example.com, 301 933 2710.
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The Institute for Policy Studies, founded in 1963, has published 15 widely publicized annual reports on executive pay. The latest, Executive Excess 2008, released August 25, 2008, finds that five tax loopholes that benefit top executives cost taxpayers more than $20 billion per year.
For more than four decades, the Institute for Policy Studies has transformed ideas into action for peace, justice, and the environment. It is a progressive multi-issue think tank. http://www.ips-dc.org.