Leading The News
Dodd’s pay rules linked to tough
By Ian Swanson
Posted: 02/24/09 07:55 PM [ET]
Undercutting your president is rarely a smart
strategy — unless, like Sen. Chris Dodd, you are fighting to save your
Apparently that’s exactly why the Connecticut Democrat called an audible and
put in the stimulus tougher executive compensation rules than those proposed
by President Obama.
The rules are unpopular with business, and several lobbyists and other
observers said they are widely viewed as related to Dodd’s poor poll
numbers, which show the chairman of the Senate Banking Committee vulnerable,
partly because of reports that he refinanced two mortgages in 2003 at
favorable terms with Countrywide Financial.
“It gives all the signs of desperation,” said one Wall Street analyst who
follows politics, but who did not want to go on the record for fear of
angering the powerful chairman.
“A reasonable person can come to the conclusion that it’s all tied
together,” said the analyst, who predicted Dodd is probably worried about a
primary challenger in the general election. Connecticut Republicans still
have no candidate.
Cook Political Report Senate editor Jennifer Duffy said it’s perfectly
reasonable for Dodd to point to the new rules as evidence he’s listening to
those who think he’s cozied up too much to constituencies that fall under
the Banking panel’s jurisdiction.
“I think it is a good argument to take home, but I bet it isn’t playing as
well in Greenwich,” she said.
Connecticut’s suburbs are famous for being home to wealthy Wall Street
titans, and they have rewarded Dodd in the past. Between 2003 and 2008,
securities and investment firms donated $4.1 million to his campaign chest,
according to Opensecrets.org.
“The decisions of certain Wall Street executives to enrich themselves at the
expense of taxpayers have seriously undermined public confidence in economic
recovery efforts,” Dodd said in an e-mail in response to a request for
comment. “I wrote these tough new rules to help ensure that taxpayer dollars
do not subsidize lavish Wall Street bonuses.”
Dodd’s 2008 end-run for the White House also didn’t go over well with his
constituents in Connecticut.
In a Feb. 10 poll by Quinnipiac University, 51 percent of those surveyed
said they probably or definitely will not vote for Dodd in 2010, when he is
up for reelection. That was the first time more of those surveyed by
Quinnipiac disapproved than approved of Dodd’s performance. An editorial in
The Hartford Courant described the results as “bad enough to make a veteran
politician think hard about whether to call it a day.”
Since then, Dodd appears to have gone out of his way to tweak Wall Street.
His executive pay limits have provoked a furious response from banks and
financial firms, who also were not pleased when he speculated, in a
Bloomberg interview on Friday, about the possible nationalization of some
banks. Bank shares fell quickly.
David Axelrod, a senior adviser to Obama, has said the administration would
talk to the chairman about the compensation limits.
Obama friendly to banks — so far
Talk of the possible nationalization of banks has obscured the fact that
President Obama’s administration has generally been a friend to bankers.
Despite tough talk on executive compensation, the Obama administration has
taken a number of steps to show it is not hostile to the banking and finance
“I think clearly the financial industry maintains enormous sway in the Obama
administration,” said Dean Baker of the left-leaning Center for Economic and
So far, Obama’s team has offered public support for a privately held banking
system, even while not ruling out temporary takeovers of truly troubled
institutions. It announced Monday that it will provide more support for
banks that need help.
And even when Obama has been tough, he’s gone easy. The executive pay limits
announced by the administration may only have an impact on a handful of
banks and included carve-outs allowing corporate boards to circumvent them.
Baker worries that the housing proposal announced by Obama, while “probably
more good than bad,” is voluntary and will not force banks to lower
mortgages for those who need the help. He and other observers believe it was
voluntary because the administration wanted to work with lenders, not
“As far as I can tell, this is a fairly pragmatic administration,” said
Douglas Eliot of the Brookings Institution. “You can view it as friendly;
you can view it as pragmatic.”
Still, some say Obama could still eventually take the gloves off, possibly
after the conclusion of a “stress test” set to begin Wednesday.
Daniel Alpert, managing director of Westwood Capital, sees the financial
plan announced by the administration as a Trojan horse. Once stress tests
are concluded, he thinks Obama’s administration will use its leverage to
force banks into making some painful decisions.
“You can’t see the level of warfare they’re going to do on banks,” he said.
Executive pay rules confuse many
Confusion surrounds the rules on compensation limits in the stimulus deal,
possibly because the language was added late to the 1,000-page-plus bill.
It’s unclear when company shareholders, for example, have to hold nonbinding
votes on executive compensation, something required by Dodd’s language in
the stimulus. Some believe companies would only have to hold votes if they
are filing proxies after Feb. 17, while others think the rules would be
This is particularly a problem for companies already moving through their
In a Feb. 20 letter to Securities and Exchange Commission Chairwoman Mary
Schapiro, Dodd said his view is that the “say on pay” rule requiring a vote
by company shareholders on executive compensation will apply to proxies
filed after Feb. 17, when Obama signed the stimulus bill.
Dodd also writes that company officers should not be required to provide
written certificates that they are complying with the new rules until after
standards are established by the Treasury Department, something else that
apparently isn’t crystal-clear.
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