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The Hill, February 24, 2009 article


The Hill

Leading The News

Dodd’s pay rules linked to tough reelection prospects

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 political life.

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

“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 industries.

“I think clearly the financial industry maintains enormous sway in the Obama administration,” said Dean Baker of the left-leaning Center for Economic and Policy Research.

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 against them.

“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 retroactive.

This is particularly a problem for companies already moving through their proxy votes.

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


© 2009 Capitol Hill Publishing Corp., a subsidiary of News Communications, Inc.





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