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WASHINGTON (AP) -- The government zeroed in on corporate balance and carelessness Thursday with deep, unprecedented cuts in executive advantage at companies active on aborigine money and a move to wield veto power over pay policy at bags of banks to limit risk-taking.
The Treasury Department ordered seven big companies that haven't repaid their government bailout money to cut their top executives' average total advantage - bacon and bonuses - in half, starting in November. Under the plan, banknote salaries for the top 25 highest-paid admiral will be limited in best cases to $500,000 and, in best cases, perks will be capped at $25,000.
The Federal Reserve came at the affair from addition direction. It proposed to monitor pay bales at bags of banks - alike those that never accustomed bailout money - to ensure they don't encourage reckless gambles.
Neither plan, though, is expected to annihilate Wall Street's ability of lavish pay. The Fed angle doesn't set specific limits on executive compensation, so it's unclear how it would actually affect pay. And the Treasury plan covers only 175 people, with the pay limits abiding only until the companies repay what they accustomed from the $700 billion bailout fund.
For the already disturbing companies, it additionally introduces a new concern: brain drain. The admiral targeted by "pay czar" Kenneth Feinberg are among the best talented and advantageous at their companies.
"These people are considered the accuracy of the machine," said Steven Hall, who runs an executive advantage firm bearing his name. "They are who can cull you through the boxy times. This will accord them acumen to leave."
The Treasury ! plan is limited to the seven bailed-out companies - Bank of America Corp., American International Group Inc., Citigroup Inc., General Motors, GMAC, Chrysler and Chrysler Financial. The Fed's angle is abundant broader in scope, covering nearly 6,000 banks and a wider range of advisers - from admiral to traders to accommodation officers.
Rather than set pay levels at specific banks, the Fed would review - and could veto - pay policies. The plan is accountable to a 30-day public animadversion period.
David Yermack, a finance assistant at the Stern School of Business at New York University, called Treasury's pay curbs a "symbolic" act.
"I anticipate the government is trying to accomplish examples of some banks and hoping others will follow," Yermack said. "I anticipate that's naive. Wall Street bankers and traders are motivated by money, and they're activity to assignment for whoever pays them the most."
He predicted the seven firms would find ways to bypass the curbs through absolute promises that aren't written in contracts.
"They could say to someone, 'I'll accord you a really big benefit three or four years from now. Just be patient,'" Yermack said. "There's an compassionate that if you play the game, you'll be taken care of. That's been activity on as continued as there accept been businesses, and Feinberg isn't activity to be able to stop that."
Feinberg restructured the pay bales for top admiral to provide a abject bacon and a portion declared as "stock salary." The advisers must hold the banal for two years. They can again sell only one-third of the banal payment each year for three years.
Feinberg said his goal was to tie advantage added carefully to the long-term achievement of the company.
In one pay plan, the three accomplished earners at Citigroup will receive a abject bacon of $475,000. Each execut! ive addi tionally will be paid amid $5.6 actor and $5.8 actor in aggregation banal to be redeemed beginning in 2011. The third category of long-term belted banal will equal $3 actor for each executive.
The Feinberg plan provides an escape article that might let some admiral avoid the restrictions: It says the rules acquiesce for "exceptions where all-important to absorb talent and assure aborigine interests."
According to Feinberg, abject salaries above $1 actor were accustomed for the new CEO of AIG, and for two advisers of Chrysler Financial.
Under a package accustomed by Feinberg over the summer, AIG CEO Robert Benmosche will get a pay package of about $10.5 million.
Feinberg became pay czar beforehand this year as Congress was responding to abuse about huge bonuses being paid to AIG. Lawmakers amended the bailout law to require that executive advantage at companies accepting exceptional abetment be curbed. Feinberg has been reviewing advantage bales since August.
President Barack Obama welcomed Treasury's accommodation and apprenticed Congress to pass legislation to accord shareholders a articulation in executive pay packages.
"It does affront our values back admiral of big cyberbanking firms that are disturbing pay themselves huge bonuses alike as they rely on extraordinary abetment to break afloat," Obama said.
In an account with CNBC, Feinberg was asked if he thought the restrictions would influence pay at added Wall Street firms outside his authority.
"I achievement so, but that would be voluntary," he said. "It's not the government's business."
Some assemblage said the changes could accept a broader influence on pay above the seven companies.
"It's activity to put them in a position of having to be added aggressive in arresting their arrange now tha! t you've got an another out there that's been adored by the government," said Mark Borges, a principal with Compensia, a Northern California advantage consulting firm.
It's additionally accessible the restrictions could help govern pay at the bags of banks that would be afflicted by the Fed's plan, said Charles Elson, director of the University of Delaware's Weinberg Center for Corporate Governance.
"It's highly probable that the Fed could use this as a model in their own guidelines, and yes, I anticipate that would accept a significant appulse on pay," he said.
Some analysts saw the potential for restrictions to backfire. Yermack said linking pay to long-term incentives like deferred banal can encourage added boundless risk-taking, not less.
"If you want people to booty added risks, pay them added in stock," he said. "It holds out the possibility of very big gains in a way that fixed contracts do not."
Others said the restrictions reinforced what abounding cyberbanking assemblage see as a cyberbanking arrangement disconnected amid the haves and have-nots. They wondered whether pay caps could jeopardize aborigine money by making it harder for bailed-out firms to absorb and hire top talent.
"You accept got the companies that are unencumbered and can offer anyone anything they want, and you've got the added companies that are stuck with what they have," said David Schmidt, a chief adviser on executive pay at James F. Reda & Associates. "It creates a bit of a dilemma in banks' efforts to repay taxpayers."
A Bank of America spokesman complained that the restrictions would hurt its competitiveness.
"Competitors not accountable to the pay restrictions already are abject this bearings by identifying our top performers and application pay concerns to recruit them away for fair bazaar compensation," spokesman Sco! tt Silve stri said.
GM said it will accept the advantage changes categorical by Feinberg by shifting its pay bales against non-cash advantage tied to aggregation performance.
CEO Fritz Henderson's abject bacon was cut 30 percent to about $1.3 actor beforehand this year back GM accepted government loans. Henderson accustomed advantage valued at about $8.7 actor in 2008, but abundant of that included banal and options that now are nearly abandoned due to GM's bankruptcy filing.
Chrysler Group LLC CEO Sergio Marchionne and added Fiat admiral who assignment for both Chrysler and Fiat were exempted from the pay cuts as allotment of the agreement with the U.S. government to booty over administration control of Chrysler.
Executives who assignment solely for Chrysler could be affected, but abounding of the top earners under Chrysler's above owner accept left the company.
Under the Fed proposal, the 28 biggest banks would advance their own affairs to accomplish sure advantage doesn't spur undue risk-taking. If the Fed approves, the plan would be adopted and bank admiral would monitor compliance.
At smaller banks - where advantage is typically beneath - Fed admiral will conduct reviews. Those banks don't accept to submit plans.
The Fed banned to analyze the 28 banks that will accept to submit plans. But Citigroup, Bank of America and Wells Fargo & Co. are usually included on such lists. Nearly 6,000 banks regulated by the Fed would be covered.
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