Critics say Treasury plan may not curb CEO pay

By Martha Graybow and Rachelle Younglai

NEW YORK/WASHINGTON (Reuters) - New rules limiting executive payouts at U.S. banks participating in a federal cash infusion plan may not rein in CEO compensation at all because the language is vague and subject to government interpretation, critics say.

The pay rules were detailed on Tuesday as part of U.S. Treasury Secretary Henry Paulson's plan to inject $250 billion into U.S. banks in a bid to shore up confidence.

Critics say that while the pay limits do place some restrictions on things like so-called "golden parachutes" awarded to departing executives, the rules overall set no precise limits on corporate leaders' compensation.

The Treasury Department says banks that accept the cash infusions must ensure that compensation does not encourage executives to take "unnecessary and excessive risks that threaten the value of the financial institution." But the rules do not define those risks and many question who will decide what is excessive.

"Without clear limits on pay, the public is being asked to put their trust in Secretary Paulson, a man who made hundreds of millions of dollars as a Wall Street CEO, to decide what's 'excessive,'" said Sarah Anderson, a pay expert at the Institute for Policy Studies, which has pressed for CEO pay curbs.

Anderson said "a bailed-out bank board of directors would be perfectly free to funnel $10 million into its CEO's pockets -- unless Paulson decides that reward poses an excessive risk to the institution."

Bill Coleman, chief compensation officer at Salary.com, a company that tracks pay matters, said it's unclear who will judge whether pay plans for top executives encourage risky behavior or not.

"I'm not convinced that we have the ability to really monitor those things," Coleman said.

He said the plan to curb pay was "a necessary gesture, but the devil is in the details."

Paul Hodgson, senior research associate at corporate governance group The Corporate Library, called the incentive compensation provision "very subjective" and said the language is too vague.

"Not only is it too vague to apply, but it's too vague to understand what they mean by that," said Hodgson.

PAST ATTEMPTS TO REGULATE PAY

For decades, lawmakers have tried to restrict how much corporate executives earn. However prior legislation, including caps on salary that companies can deduct from their corporate tax bills, have sometimes backfired because companies found other ways to reward executives through things like performance pay and stock options that were not subject to the caps.

Now that a number of big banks have failed, policymakers have taken another stab at reining in executive pay.

The Treasury Department also has set up other plans for limiting pay for companies taking part of the bailout package, in response to demands from some lawmakers troubled by the prospect of rewarding CEOs whose companies are in trouble. Wall Street chiefs have long been among the best paid in Corporate America.