Economic Stimulus Bill Toughened by Senator Dodd Signed into Law by President Obama Severely Limits Wall Street CEO Bonuses

Senator Christopher Dodd (D-Conn) chairman of the Senate Committee on Banking, Housing and Urban Affairs stealthily slipped an amendment into the $787 billion economic stimulus bill that will set severe restrictions on bonuses and other types of compensation for executives at financial institutions receiving taxpayer bailout monies.

The significance of Mr. Dodd's amendment is that it imposes considerably more "wide-ranging restrictions on how — and by how much — top executives at companies receiving federal bailout money can be compensated," than the Obama Treasury Department had requested just a few days earlier.

In taking this action, Senator Dodd's amendment "imposes new limits on executive compensation that could significantly curb multimillion dollar pay packages on Wall Street."

CNN explains: "The (Dodd) measure would cap bonuses — often far more lucrative than base salaries for top executives — and could require executives at companies that have already received bailout money to pay back some of their compensation if it exceeded certain limits.

CNN summarizes four salient aspects of the Dodd amendment: "Firms taking more than $500 million from TARP would be required to restrict compensation paid to the 20 top-earning employees as well as to key executives. For companies getting $250 million to $500 million from TARP, it would be senior executives and the top 10 earning employees, and the number of affected employees would go down from there for companies taking less than $250 million from TARP.

"Golden parachutes" for senior executive officers or the next five most highly-compensated employees would be banned at companies receiving TARP funds, ending those often-sizeable severance payments for departing executives.

"Top executives at TARP-funded firms would be barred from receiving bonuses exceeding one-third of their annual salary. For many top executives that would mean a dramatic reduction. The Wall Street Journal cited as an example the 2007 compensation of Bank of America Corp. CEO Kenneth D. Lewis, who was paid a salary of $1.5 million that year but who actually earned a total of $16.4 million including a bonus, stock-option awards and restricted stock. At the same salary level, Lewis' 2009 compensation would be restricted to about $2.25 million under the Dodd provisions, the Journal said.

In a statement released by Senator Chris Dodd's office concerning the amendment he attached to the economic stimulus bill that is intended to end huge bonuses for executives at firms that received funds from the Troubled Asset Relief Program (TARP):

“I’m delighted that my amendment to impose tough new limits on huge bonuses for executives working in firms that receive taxpayer funds will be included in the final economic recovery bill. The decisions of certain Wall Street executives to enrich themselves at the expense of taxpayers have seriously undermined public confidence in efforts to stabilize the economy. American taxpayers deserve better. With vigorous oversight by the Treasury Department and by Congress, these tough new rules will help ensure that taxpayer dollars no longer effectively subsidize lavish Wall Street bonuses.”

For a written transcript of the president's remarks in Denver at the signing click

Now, the stimulus bill, which "President Obama signed today "in Denver, Colorado" at a signing ceremony; "limits bonuses for executives at all financial institutions receiving government funds to no more than a third of their annual compensation. The bonuses must be paid in company stock that can be redeemed only when the government investment has been repaid. With the measure, lawmakers seek to address public outrage over extravagant Wall Street paydays even as taxpayers bail out the industry." Reported the Washington Post. Furthermore, The Post adds Senator Dodd's "limits in the stimulus bill would apply to top executives and the highest-paid employees at all 359 banks that have already received government aid.

In commenting on the more rigid restrictions on CEO bonuses, Scott Talbot, who is employed by several of the nation's most significantly sized financial businesses, said: "This is a big deal. This is a problem,... It undermines the current incentive structure."

The Washington Post explained: "Bonuses make up much of financial executives' take-home pay, so the new rules could significantly diminish their compensation. For example, Goldman Sachs chief executive Lloyd Blankfein made $68.5 million in 2007 -- a Wall Street record -- but $67.9 million of that was in bonus and other incentive pay that analysts said would be subject to the new rules." The Post cited another example: "Citigroup's top executive, Vikram Pandit, has voluntarily agreed to a $1 salary until his company returns to profitability. In theory, this means that Pandit would be allowed an annual bonus of pennies."