Wall Street finds ways around executive pay caps

"Over the past 15 years there have been a number of efforts to put some sort of restriction on executive pay, both through legislation and through shareholder activism, and yet we see CEO pay continuing to rise," said Sarah Anderson, an executive-pay expert at the Institute for Policy Studies in Washington. "Wall Street has the best, shrewdest lawyers in the world looking to maintain these outrageous pay levels."

In 1984, for example, Congress sought to limit excessive severance packages, known as golden parachutes. Lawmakers changed the tax code so that any payment more than 2.99 times an executive's annual salary was hit with a 20% excise tax.

But most companies were only providing severance of one year's salary to their executives. Companies interpreted the new tax rules to mean that anything up to three times the salary was permissible, and severance packages rose to that level.

Many companies also responded by simply paying the executives' taxes -- a practice known appropriately enough as a "gross up."

Just as in the past, there are ways around Obama's rules.

First, they apply only to companies that receive government bailout money in the future. For companies that don't receive "exceptional financial recovery assistance" -- such as the outsize bailouts that went to AIG and Citigroup -- the restrictions on executive pay would be waived if the company discloses the compensation and allows a nonbinding shareholder vote.

Companies that don't have the restrictions waived still could pay an unlimited amount in restricted stock and other incentives. The incentives can be cashed in after the company has paid the government back, but also if the government decides after an undetermined period that the company has shown it is meeting its repayment obligations. The Treasury website did not detail what constitutes "exceptional" aid.

Also, while executive salaries are capped, there are no limits on the scores of mid-level Wall Streeters such as bond traders or investment bankers who typically pocket million-dollar bonuses.

"It's a move in the right direction, but it doesn't have enough teeth and on some items doesn't go deep enough," said Brian Foley, a pay expert in White Plains, N.Y. "It's important not to be too intrusive, but particularly with companies that have gotten exceptional assistance, the rules ought to be truly tough."