U.S. sets executive pay limits for bailout companies

By Jeff Mason

WASHINGTON (Reuters) - 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 and insurer AIG -- 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.