The movement to curb executive pay in the wake of the financial crisis continued to gain momentum this week, as Germany and Sweden joined the list of nations putting limits on financiers' compensation as part of efforts to rescue their banking systems.
At least six countries now have curbed pay, or are poised to do so. The unprecedented global scope of these efforts could change pay practices broadly as well as prompt top managers to move to unaffected companies.
Sweden unveiled a plan that offers bank guarantees of $200billion. Banks taking part must limit key executives' compensation.
The German cabinet imposed a $670,000 annual salary cap and other limits on top executives of banks that receive capital injections or sell troubled assets under that nation's rescue plan. The U.S. financial-industry bailout also limits compensation at participating firms. Some predict that could lead to pay restrictions at other U.S. companies.
One lightning rod is Wall Street executives who walk away with big payouts from companies receiving government money, despite the curbs.
The widespread moves to restrict compensation reflect public outrage over outsized pay packages for executives who led banks to big losses – or bankruptcy proceedings.
The curbs range from sweeping to narrow. The German plan is among the most restrictive. In addition to the salary limit for top executives, it also bars bonuses, stock-option grants, severance payments and option exercises at banks drawing government funds during the bailout program, which could last through 2012. Banks that only tap credit guarantees are exempt from the restrictions.
At the other extreme, Switzerland's UBS AG agreed as part of a government recapitalization plan to use international “best practices” for executive pay and accept government monitoring.
The U.S. financial-rescue law falls somewhere in between. For the five top executives at participating companies, the Treasury Department is limiting corporate-tax deductions on executive pay and “golden parachute” payments for departing executives, requiring certain companies to recover awards to executives that were made based on inaccurate results, and barring incentives given executives to take “unnecessary and excessive risks.”
But it is unclear which, if any, of the approaches will be effective at curbing compensation.