Banking firms are making a pitch to stimulus conferees to ditch at least three different Senate amendments that would constrain pay packages at firms that participate in the Troubled Asset Relief Program, arguing that it could lead to a brain drain to foreign institutions.
The Senate measure contains three amendments that tighten executive pay for those who participate in TARP, as lawmakers respond to outrage over a report that securities firms paid their Wall Street employees $18.4 billion in bonuses in 2008. The chorus is likely to grow louder on Wednesday, as eight top banking CEOs will testify on their firms' use of TARP funds.
Financial firms that participate in the program are especially concerned about language that would allow policymakers to claim back pay from top executives, overriding current Treasury guidelines on executive compensation. That comes as Treasury Secretary Geithner plans today to unveil his plan on how he will spend the remaining $350 billion in the program in conjunction with other efforts it will take to unclog the credit markets.
"The more restrictions that are added, the more chilling effect it will have on TARP II, and companies will start looking for an exit strategy," said Scott Talbott of the Financial Services Roundtable. Banking groups are arguing that further restrictions could place U.S. firms at a disadvantage to their foreign competitors, noting that a trader or chief financial officer could be snapped up by a non-U.S. bank not bound by such rules.
"It's something we can't be oblivious to," Rep. Jeb Hensarling, R-Texas, said of such arguments. "Capital can flow overseas at the stroke of a keyboard. The talent can go overseas as well." Hensarling, a member of the TARP oversight board, added that he has approved of the action President Obama took last week that placed a $500,000 cap on top officials at companies that need special assistance, rather than a capital injection that most banks received through TARP.
Those firms could not offer additional compensation with the exception of company stock available after the government has been repaid. "At the end of the day, it is the peoples' money," Hensarling said.
Sen. Claire McCaskill, D-Mo., has an amendment that would cap the salary for any employee of a TARP firm at $400,000 -- the salary of the president of the United States. It also would allow the Treasury secretary to get reimbursement of a salary when he deems it appropriate. In the wake of that action, Senate Banking Chairman Christopher Dodd offered a competing amendment to ban TARP firms from paying a bonus, retention award or other compensation to its 25 highest-paid employees. It also would allow the Treasury secretary to expand the prohibition to additional senior officials if he determines it is in the public interest.
Dodd's language would require the Treasury secretary to review the bonuses paid to executives of TARP recipients to determine if they were excessive and allow him to renegotiate for an appropriate reimbursement.
On Friday, the chamber adopted an amendment by Sen. Ron Wyden, D-Ore., to require TARP firms that paid out 2008 bonuses to top executives to buy back their stock at an amount equal to that compensation. If not, future excess bonus payments will result in an excise tax on the corporation.
One banking lobbyist representing a TARP firm said he could live with a change in the Dodd language that would give authority to Treasury to conduct review bonuses, rather than make it mandatory.
"What you want is the secretary to have the power so they can turn
screws on people," said the lobbyist. "'If you are behaving badly, I
have the authority to jam you up.'