The House moved toward passing legislation Friday to rein in salaries and bonuses for executives on Wall Street, a day after it was disclosed that nine bailed-out banks awarded million-dollar-plus bonuses to thousands of its employees.
Democrats, who blame excessive salaries and bonuses for contributing to the financial crisis, are pushing the bill to ban pay plans that encourage employees at large firms to take "inappropriate risks." It was expected to pass the House Friday, with the Senate due to take it up after Congress returns in September from its recess.
The debate came after New York Attorney General Andrew Cuomo reported that nine banks that got billions of dollars in federal bailout money had awarded bonuses of more than $1 million each to some 4,800 employees.
"This is not the government taking over the corporate sector. . . . It is a statement by the American people that it is time for us to straighten up the ship," said Rep. Melvin Watt, D-N.C.
Republicans are reluctantly pushing back. They say they understand voter outrage but argue severe restrictions should be imposed only on banks that accept government aid.
The legislation's ban on risky compensation would apply to any firm with more than $1 billion in assets, including bank holding companies, broker-dealers, credit unions, investment advisers and mortgage buyers Fannie Mae and Freddie Mac.
Rep. Michael Castle, R-Del., said the effect would be to force "financial institutions who did not contribute to the crisis to pay for the mistakes of others."
Another Republican, Rep. Jeb Hensarling, said the government would be better off terminating the $700 billion bank bailout program established last year.
"If you quit bailing out risky behavior, Mr. chairman, you'll receive less risky behavior," said Hensarling of Texas.
The bill also tries to discourage excessive corporate pay by giving shareholders a nonbinding vote on compensation packages and requiring that compensation committees not have financial relationships with the company and its executives.
President Obama had asked Congress to give shareholders a "say on pay" and diminish management influence on compensation as part of a broader proposal to reform financial regulations. Rep. Barney Frank, chairman of the House Financial Services Committee, embraced the idea but added the outright ban on risky incentives.
During the debate Friday, Republicans cast the proposal as too liberal for even Mr. Obama.
Frank, a Democrat from Massachusetts, snapped back: "We are not taking orders from the Obama administration."
Cuomo's report Thursday concluded that large banks, including Bank of America Corp., Merrill Lynch & Co., JPMorgan Chase & Co. and Goldman Sachs Group Inc., were generous with employee bonuses last year.
Citigroup, which is now one-third owned by the government as a result of the bailout, gave 738 of its employees bonuses of at least $1 million, even after it lost $18.7 billion during the year, Cuomo's office said.
The New York-based bank received $45 billion in government money and guarantees to protect it against hundreds of billions of dollars in potential losses from risky investments.
Bank of America, which also received $45 billion in government money, paid $3.3 billion in bonuses, with 172 employees receiving at least $1 million and the top four recipients receiving a combined $64 million. Merrill Lynch, which Charlotte, N.C.-based Bank of America acquired during the credit crisis, paid out $3.6 billion, including a combined $121 million to four top employees.
"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," said Rep. Edolphus Towns, D-N.Y., chairman of the House Oversight and Government Reform Committee.
While the legislation would apply to the broader financial community, firms that have accepted hefty federal bailouts already are under tougher restrictions. Obama has appointed Kenneth Feinberg, a lawyer who oversaw payments to families of victims of the Sept. 11, 2001, terrorist attacks, to monitor compensation at those companies and reject pay plans he deems excessive. Feinberg's authority does not cover compensation before this year.
This program aired on July 31, 2009. The audio for this program is not available.