on Bank Pay, Bonuses Face Senate, Obama Skepticism
By Ian Katz and Jesse Westbrook
July 31 (Bloomberg) -- Restrictions on financial
industry bonuses heading to a vote in the U.S. House may be rejected by
the Senate and the Obama administration, which are reluctant to increase
government’s role in deciding compensation.
The House, emboldened by New York Attorney General
Andrew Cuomo’s report yesterday that showed nine banks getting U.S.
aid paid $32.6 billion in bonuses last year, will probably pass a bill
requiring regulators to ban pay practices that encourage “inappropriate
risks.” A panel in the House, where Democrats hold a 256-178 advantage,
approved it along party lines July 28.
The bill must pass the Senate and be signed by
Barack Obama to become law. White House press secretary
Robert Gibbs, who hadn’t read Cuomo’s report, said yesterday the
administration is concerned the measure may give regulators too much say
on incentive pay.
Michael Oxley, former chairman of the House Financial Services
Committee, said senators are more likely to back the say-on-pay measure
that gives investors a non-binding vote on compensation.
“It is difficult for me to believe that the Senate
would be particularly interested in passing that version, despite the
report,” Oxley, co-author of the
Sarbanes-Oxley corporate governance law, said in an interview. “I
don’t think it’s going to influence the Senate.”
The House in March passed a bill to set a 90
percent tax on bonuses at companies getting at least $5 billion in aid.
The legislation, responding to public outrage over retention bonuses at
American International Group Inc., died in the Senate after Obama said
the U.S. shouldn’t “govern out of anger.”
Public outrage over Wall Street compensation
Goldman Sachs Group Inc. set aside $11.4 billion for compensation and
benefits for the first half of this year, a 33 percent rise from a year
earlier and enough to pay every worker $386,429 for that period.
Cuomo analyzed 2008 bonuses at banks that received
$175 billion in U.S. aid and found that 4,793 employees were paid more
than $1 million in bonuses last year. The 51 members of
Citigroup Inc.’s senior leadership committee got an average of $4
million each, according to Cuomo.
The report underlines “why we’re trying to pass
this bill,” House Financial Services Committee Chairman
Barney Frank said yesterday in an interview. “This is precisely the
kind of thing that should be subject to legal restriction.”
Tougher to Stampede
The House measure goes further than administration
proposals to regulate compensation. It bars incentive-pay plans that
“could threaten the safety and soundness of covered financial
institutions,” or that “could have serious adverse effects on economic
conditions or financial stability.”
The Senate wouldn’t take up the measure until it
returns from its recess, which begins Aug. 10 and ends Sept. 7.
“History teaches us that it is a lot tougher to
stampede the Senate than the House,” said
John Olson, a partner at the
Gibson, Dunn & Crutcher law firm in Washington. “If Mr. Cuomo was
playing federal politics and trying to influence the Senate, he would have
released this report after Labor Day.”
The rules, with details to be set later, would
cover every U.S. financial institution with at least $1 billion of assets.
In addition to banks, credit unions and other financial companies, it also
may cover hedge funds.
“We should tread very lightly,” said Senator
Mark Warner, a Virginia Democrat, speaking before Cuomo’s report was
released. Banks might avoid congressionally mandated pay restrictions if
they can set the “right standards” and then be willing to engage in
self-policing, he said.
Hedge funds and other money managers should be
exempt from limits because “if you think you are paying too much you can
take your money out,” said
Phillip Goldstein, principal at Bulldog Investors in Saddle Brook, New
Jersey. “It’s the same thing with baseball. You see the price on the
tickets and if you think it’s too much, don’t go to the game. I can’t
believe anybody who took Eco 101 could support this.”
Goldstein won a court decision in 2006 throwing
out an SEC rule requiring fund managers to provide information such as
their business address and assets under management.
“If this is going to be an issue, then as soon as
Congress started handing out the money they should have been there to say
that when it comes to compensation, we want to be party to this,” said
Peter Sorrentino, a senior portfolio manager at Huntington Asset
Advisors in Cincinnati, which manages $13.8 billion including shares of
Citigroup, Goldman Sachs, JPMorgan Chase & Co. and Wells Fargo & Co.
To contact the reporters on this story:
Ian Katz in Washington at
Jesse Westbrook in Washington at
Last Updated: July 31, 2009 00:01 EDT