Some of the biggest financial firms that could benefit from the government's rescue plan also handed out some of Wall Street's biggest paychecks to their top executives.
Goldman Sachs chief Lloyd Blankfein, for instance, took home nearly $54 million in salary, perks, bonuses and other stock awards in 2007. J.P. Morgan Chase chief executive James Dimon collected $30million in cash, stock and options. And Ken Thompson, the former chief of Wachovia received total compensation of about $17.1 million last year. (Ken Lewis, the CEO of Bank of America got $17 million.)
As Congress and the Bush administration wangle over the details of a $700 billion bailout plan for the financial services industry, lawmakers are moving to make sure executives at firms that take taxpayer money don't continue to receive gigantic paychecks or walk off with huge severance payments. The details on how such curbs would work have yet to be finalized.
Spokesmen for J.P. Morgan Chase and Wachovia declined to say whether their firms would take part in the bailout or to comment on the proposed restrictions on executive pay. Representatives for Goldman Sachs did not return phone calls.
The pay cap “is a huge point for us,” said Scott Talbott, head lobbyist for the Financial Services Roundtable, a trade group that represents large financial institutions. “Each company has a compensation board with people who are closest to the all facets of a business to be able to weigh compensation levels. But it's an uphill battle politically to fight against executive compensation as part of a $700 billion bailout.”
At the heart of the debate is the notion that Wall Street's lucrative, incentive-laden pay packages encourage executives to make ever riskier bets on future business. During the boom, such actions produced spectacular results. But now, as the markets unwind, that risk-taking is considered a liability and damaging to a firm's long-term health.
There is a precedent for capping executive pay as a condition of receiving federal aid. When Chrysler took a federal bailout in 1979, executive salaries were cut as much as 10 percent and chief executive Lee Iacocca's paycheck that year was $1.
More recently, when regulators took over mortgage finance Fannie Mae and Freddie Mac this month, they eliminated $12.59 million in exit payments for executives Daniel Mudd of Fannie Mae and Richard Syron of Freddie Mac. The executives will now get a combined $9.43 million upon their exit.
At a Senate banking committee hearing Tuesday, Chairman Sen. Christopher Dodd, D-Conn., insisted executives be held accountable for driving their firms into financial turmoil, should they seek federal help.
He said the Bush administration's presented plan would do “nothing to stop the very authors of this calamity to walk away with bonuses and golden parachutes worth millions of dollars.”
Treasury Secretary Henry Paulson responded that placing restrictions on executive pay could undermine the plan.
Limits on executive pay run counter to the Wall Street practice of granting annual bonuses based on profit growth.