September hearing to review executive pay

The House will hold a hearing in September to review executive pay
regulations for banks and other companies bailed out by the government in
the wake of a report that those institutions paid billions in 2008 bonuses.

The report, from New York Attorney General Andrew Cuomo’s office, found
that two bailed-out institutions, Citigroup and Merrill Lynch, suffered
about $27 billion in combined losses last year but still paid out nearly $9
billion in bonuses. The two companies received $55 billion in money through
the Troubled Asset Relief Program, according to the report.

{mosads}Three other institutions, Goldman Sachs, JPMorgan and Morgan Stanley,
paid out bonuses in 2008 that exceeded their net income. Those three banks
each received $10 billion in TARP funds but have moved to repay the money.

Cuomo’s report concludes that “even a cursory examination of data suggests
that in these challenging economic times, compensation for bank employees
has become unmoored from banks’ financial performance.”

The report said compensation packages should be designed to promote
long-term, sustainable growth.

In a
letter to Cuomo on Thursday, House Oversight and Government Reform Committee Chairman Edolphus Towns (D-N.Y.) said he agreed with the report’s conclusions,
adding that they matched what congressional investigations have discovered.

He said executive compensation policies at companies that were bailed out by
the government were a “major driver of risky decisions” that led directly to
the financial crisis, and invited Cuomo to testify at the September hearing
along with Ken Feinberg, the Obama administration’s executive pay “czar.”

Cuomo’s report said private firms should better police executive pay, and
warned that if they do not, the government should step in:

“If the private sector does not act, such reform should be discussed as part
of the federal regulatory reform effort and, where appropriate, taken into
account by the Obama administration’s pay czar.”

Congress flirted with passing legislation earlier this year that would have
tried to claw back bonuses paid to employees of AIG, an insurer at the heart
of the financial crisis. The House approved legislation to tax those
bonuses, but the bill died in the Senate.

The House is moving forward with legislation that would give shareholders an
annual vote on executive pay, but that bill would not place any limits on such pay.

Towns said Cuomo’s report on executive pay at companies receiving taxpayer
bailouts was “shocking and appalling.”

“Companies that only months ago were facing bankruptcy and sought the help
of the federal government are now paying out billions in compensation­ and
in some cases without reimbursing taxpayers,” Towns said in a release.

“This egregious behavior proves that Wall Street still doesn’t get that
times have changed and the old way of paying executives is long gone.”

He also offered a full endorsement of Cuomo’s conclusion that “there is no
rhyme or reason to executive pay —­ it had no relation to executive
performance, no relation to managing risk and no relation to company
performance.”