* Rules apply for companies getting funding in the future
* Obama criticizes pay "irresponsibility"
* Geithner to hold conference on compensation reform
* Wall Street observers critical of move
By Jeff Mason
WASHINGTON, Feb 4 President Barack Obama took
on bailed-out Wall Street firms on Wednesday, setting a
$500,000 annual cap on pay for top executives at companies
receiving taxpayer funds and tapping popular anger over
financial sector excesses.
Obama said more measures would be outlined next week to
overhaul the crisis-hit U.S. financial sector, which has been
propped up with billions of dollars in public funds.
"This is America, we don't disparage wealth. ... What gets
people upset, and rightfully so, is executives being rewarded
for failure. Especially when those rewards are subsidized by
U.S. taxpayers," he said.
The president won support in Washington, with some
Republicans who were critical of the financial sector bailout
praising the move. But Wall Street critics said the
compensation cap was a political gambit that could prompt a
talent flight from affected firms.
Obama, a Democrat who succeeded Republican George W. Bush
two weeks ago, said his administration would not allow public
money to be wasted on payouts to CEOs whose businesses helped
spur the financial and economic crisis.
"For top executives to award themselves these kinds of
compensation packages in the midst of this economic crisis is
not only bad taste -- it's bad strategy -- and I will not
tolerate it as president," he said.
Treasury Secretary Timothy Geithner said he would give
details next week of a comprehensive financial recovery plan.
Obama, pushing a broad stimulus package worth nearly $900
billion to prod the economy out of recession, repeated his call
for bipartisan efforts to back the bill.
The new U.S. rules, which are not retroactive, would
require companies that get exceptional government funds in the
future to abide by the cap. This could include companies
outside the financial sector, including auto manufacturers.
Additional compensation must be limited to restricted stock
that does not vest until government money is paid back with
interest, according to the new rules.
Companies that have previously received bailout money --
such as financial giant Citigroup (C.N) and insurer AIG (AIG.N)
-- would have to agree to stricter oversight and prove they
have followed already established limits on executive
compensation, which were widely seen as being too lax.
CRITICISM AND PRAISE
Some Wall Street analysts and observers said affected
financial executives might vote with their feet and accused
Obama of playing to the crowd.
"This is pure political grandstanding. If the limit has
bite, it will be counterproductive and the unintended
consequences will hurt the U.S. as skilled and bright senior
managers make choices," said David Kotok, chief investment
officer at Cumberland Advisors. "If the limits have loopholes,
they are a sham. Industrial policies fail. So will this one."
The restrictions announced on Wednesday were likely to be
popular with average Americans who have been reeling from job
losses and financial worries as the recession bites.
New York officials reported last week that Wall Street
companies paid $18.4 billion in bonuses to employees last year
even though the government had to intervene to save the sector
"Thank you Mr. President. It is definitely time," said Dawn
Berry, a flight attendant from Scottsdale, Arizona.
"Maybe it will send a message to the other CEOs and
decision makers at top levels of management. ... Don't go
around living high on the hog when you have employees who are
wondering each day if they come in to work, if it's going to be
their last day."
Obama's move followed a set-back on Tuesday when his pick
for health secretary withdrew over income tax problems.
The president said in television interviews that he
"screwed up" over the issue and he used the signing of a new
children's health care law on Wednesday to push Congress to
quickly approve the stimulus plan and broad economic
Supporters of his move on executive pay included the leader
of the Republicans in the U.S. House of Representatives, John
Boehner. Many Republicans in the Democrat-controlled Congress
have been resistant to government bailouts, even when fellow
Republican Bush was president.
"I think if anybody is looking to the taxpayer to help bail
their company out, these kind of executive compensation limits
are appropriate," Boehner said.
Republican Representative Mike Pence, who said he had
opposed the finance sector bailout to begin with, said, "maybe
it is going to wake up American business -- that there is a
cost when you invite the 800 pound gorilla of government into
Senate Democrats worked on Wednesday to revise their plan
for the broad stimulus package to drum up enough support so
they can send it to Obama next week to sign into law.
Republicans have argued for more tax cut provisions.
Obama's move on pay limits mirrors efforts made or under
consideration in other countries hit by the economic downturn.
European Union finance ministers have said managers of
bailed-out European banks should "not retain undue benefit,"
but they imposed no specific limit. Germany plans to set a
500,000 euro pay limit for executives at rescued banks as well
as a ban on bonuses and stock-option grants.
(Additional reporting by David Alexander, Tim Gaynor and
Vikram Subhedar; editing by Frances Kerry and Todd Eastham)