Reporting from Washington and New York — President Obama moved Wednesday to rein in the pay of executives whose companies get taxpayer bailout money -- putting a $500,000 cap on annual compensation, limiting "golden parachutes" to departing bigwigs and requiring corporate boards to adopt policies on luxury expenditures such as lavish entertainment and parties.
Corporate watchdogs applauded the intent of the new measures, but compensation experts cautioned that abundant loopholes -- and crafty lawyers -- could undermine any lasting effect.
"You're pitting a group of government bureaucrats against compensation consultants and lawyers who are paid lots of money, and they're pretty damn smart," said Graef Crystal, a former executive compensation consultant who has written six books on the subject. "It's a lot easier to find ways around things like this than it is to invent them in the first place."
Under the new rules, companies that receive "exceptional financial recovery assistance" -- large bailouts like those given to Citigroup Inc. and American International Group Inc. -- would not be allowed to pay senior executives more than $500,000 in total annual compensation.
Obama's action was triggered by disclosures that Wall Street firms paid out almost $20 billion in bonuses last year, even as they were seeking or taking public money intended to spur the economy, and in spite of a flagging economy.
Over the last two decades, however, Wall Street and the rest of corporate America have skirted a series of rules that sought to rein in executive compensation. An attempt in 1993 to deal with such compensation is a textbook example.
With the country struggling economically, President Clinton signed a law limiting a company's ability to deduct more than $1 million in salary for top executives from their taxes.
It's widely believed to have backfired. Companies shifted to stock options, leading to an explosion in executive compensation through the rest of the 1990s and setting the stage for scandals over attempts to backdate the options to make them even more valuable.
Thanks to lucrative options and a strong stock market, the typical chief executive was earning 525 times the pay of the average U.S. worker by 2000, according to one recent study. The gap has narrowed in recent years, the study found, but CEOs still on average earn 344 times the salaries of average workers.
