August 1, 2009
House Approves Limits on
WASHINGTON — The House
approved a measure Friday that would put new constraints on
executive pay, capitalizing on populist outrage over
multimillion-dollar bonuses to Wall Street executives whose companies
were bailed out by taxpayers.
Brendan Smialowski/Bloomberg News
The bill, introduced by Representative Barney
Frank, would also let shareholders make
nonbinding votes on executive pay.
The measure passed
237 to 185, with most lawmakers voting along party lines. The Senate
executive compensation as part of a regulatory overhaul package after
its August recess.
The bill, introduced by
Barney Frank, Democrat of Massachusetts, enables regulators to ban
payments that give workers what the legislation calls “perverse incentives”
to take risks that could hurt the nation’s financial system.
The bill gives the
Securities and Exchange Commission, among other federal regulators, nine
months to propose rules for regulating compensation packages at institutions
whose assets total more than $1 billion.
regulators to prohibit risky bonus practices by financial firms is not only
long overdue, but the responsible thing to do for the taxpayers, who have
ended up footing the bill for too many corporate excesses,“ Speaker
Nancy Pelosi, Democrat of California, said in a statement.
The legislation would also
allow shareholders to vote on executive pay, though those votes would be
In addition, it requires
that individuals from outside a company’s management be included on
compensation committees, and that these people receive no pay from and have
no relationship to company management.
The passage of the bill
comes after news on Thursday that companies receiving bailout money had paid
bonuses of more than $1 million each to thousands of their employees for
2008. The New York attorney general,
Andrew M. Cuomo, reported that nine banks that received billions in
taxpayer bailout money had awarded bonuses of more than $1 million apiece to
Even at weaker banks like
Citigroup, which has not returned any of the $45 billion it received in
bailout money, 738 employees received bonuses of at least $1 million, out of
a total bonus pool of $5.3 billion.
“What we’ve seen on Wall
Street in the last many years is turning that concept of pay for performance
on its head,“ said Representative Chris Van Hollen, Democrat of Maryland.
In the House floor debate,
Democrats, who blame excessive bonuses for contributing to the
financial crisis, played up the importance of shareholder input on
“We must have a very strong,
definitive say-so from the shareholders,“ said Representative David Scott,
Democrat of Georgia.
Republicans slammed the
measure as yet another example of needless government intervention into
private business practices, similar to arguments that they have been making
in the debate over health care.
“The Democratic majority has
a great desire to have the government everywhere in our lives,“ said
Representative Tom Price, Republican of Georgia. “It cuts at the very core
of our free market system.“
The bill would “take away
the rights of individual companies to conduct business as they see fit,“
said Michael Castle, Republican of Delaware.
Though the Obama
administration has advocated that shareholders have a nonbinding vote on
executive compensation, and encouraged the elimination of conflicts of
interest on compensation committees, the White House has not suggested that
federal regulators curb incentive-based pay for risk-taking.
At a briefing Friday
afternoon, the White House spokesman,
Robert Gibbs, said he did not know if
President Obama was familiar with the whole bill, though he said,
“Obviously, the legislation includes language and text that we sent to the
Hill not too many weeks ago.”
In a statement, the
Timothy F. Geithner, said, “This is a positive step forward to increase
accountability and transparency in executive compensation, and to help
ensure that pay encourages long-term performance, not excessive
The bill is only a part of
the president’s overall push for changes to
financial regulation. Mr. Obama has also proposed giving the Federal
Reserve greater authority to monitor financial institutions and establishing
a consumer financial protection agency, though members of both parties have
expressed unease about the extent of the agency’s powers.
Democrats acknowledged that
the bill, by itself, would not prevent another
“This just scratches the
surface,” said Brad Miller, Democrat of North Carolina.
The legislation comes as the
Obama administration is separately examining the pay practices of seven big
companies that have received significant taxpayer assistance in recent
months. The administration’s top official for compensation,
Kenneth R. Feinberg, has been talking with the companies as he considers
whether to approve the compensation of top executives at the
American International Group,
Bank of America,
Chrysler and the financing arms of those two automakers.
A version of this
article appeared in print on August 1, 2009, on page B1 of the New York