US unveils broad effort to limit executive pay

(AP Photo/Charles Dharapak, File)

FILE - In this Aug. 15, 2007 file photo, Kenneth R. Feinberg, now the special master at the Treasury Department appointed by President Obama to handle compensation issues, speaks at his office in Washington. The Obama administration plans to order companies that received huge government bailouts last year to sharply cut the compensation of their highest paid executives, according to a person familiar with the decision.

WASHINGTON— The government zeroed in on corporate excess and recklessness Thursday with deep, unprecedented cuts in executive compensation at companies living on taxpayer money and a move to wield veto power over pay policy at thousands 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 compensation _ salary and bonuses _ in half, starting in November. Under the plan, cash salaries for the top 25 highest-paid executives will be limited in most cases to $500,000 and, in most cases, perks will be capped at $25,000.

The Federal Reserve came at the issue from another direction. It proposed to monitor pay packages at thousands of banks _ even those that never received bailout money _ to ensure they don't encourage reckless gambles.

Neither plan, though, is expected to kill Wall Street's culture of lavish pay. The Fed proposal 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 lasting only until the companies repay what they received from the $700 billion bailout fund.

For the already struggling companies, it also introduces a new concern: brain drain. The executives targeted by "pay czar" Kenneth Feinberg are among the most talented and productive at their companies.

"These people are considered the brains of the machine," said Steven Hall, who runs an executive compensation firm bearing his name. "They are who can pull you through the tough times. This will give them reason 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 proposal is much broader in scope, covering nearly 6,000 banks and a wider range of employees _ from executives to traders to loan officers.

Rather than set pay levels at specific banks, the Fed would review _ and could veto _ pay policies. The plan is subject to a 30-day public comment period.

David Yermack, a finance professor at the Stern School of Business at New York University, called Treasury's pay curbs a "symbolic" act.

"I think the government is trying to make examples of some banks and hoping others will follow," Yermack said. "I think that's naive. Wall Street bankers and traders are motivated by money, and they're going to work for whoever pays them the most."