BUSH ADMINISTRATION'S THREE PAGE PLAN
In September 2008, the Bush Administration briefed Congressional leaders on an impending meltdown of the American financial system and asked Congress to intervene. President Bush, Treasury Secretary Henry Paulson and other officials proposed a three-page, $700 billion bill granting unprecedented, and expansive authority to Secretary Paulson with no taxpayer protections, no oversight or transparency measures, and no authority for courts to review the Secretary's decisions.
CONGRESS INSISTED ON TAXPAYER PROTECTIONS
The Democratic-led Congress refused to back down in negotiations with Bush Administration officials and Republican leaders - insisting protections for taxpayers be included in the final financial rescue legislation. The final bill:
- Put an end to golden parachutes for top executives and eliminated tax deductions for executive compensation above $500,000
- Created an oversight board appointed by bipartisan leaders of Congress and mandated a series of investigative reports about the financial regulatory system
- Called for ongoing audits by the Government Accountability Office
- Installed an independent Inspector General
CONGRESSIONAL LEADERS CALL FOR GREATER COMPENSATION RESTRICTIONS
In October 2008, Speaker Pelosi and Senate Majority Leader Reid sent a letter to Treasury Secretary Henry Paulson calling for stronger limits on executive payouts permissible under the plan:
“Given the level of public outrage over these compensation schemes and your demonstrated willingness to go beyond the letter of the law… we hope you will seriously consider strengthening the restrictions on executive compensation that apply to institutions participating in the CPP [Capital Purchase Program]…
“…we also would note that…the CPP still would allow very large compensation packages for many departing executives at institutions that will be receiving billions of taxpayer dollars. We are concerned that such lavish severance packages could weaken public support for your critical efforts to stabilize the economy.” [October 29, 2008]
In December, Congressman Elijah Cummings (D-MD), a Member of the Oversight and Government Reform Committee, repeatedly raised concerns with AIG CEO Ed Liddy about the company's executive compensation practices and its luxury expenditures.
SOME BONUSES STOPPED
In January 2009, House Financial Services Subcommittee Chairman Paul Kanjorski and Congressman Joseph Crowley successfully pressured AIG to cancel $93.3 million in retention bonuses to employees who had already left the company, as well as the top 17 executives, after the company made public plans to accelerate payouts of deferred compensation plans. [1/7/09]
FURTHER RESTRICTIONS ON EXCESS COMPENSATION
In January 2009, the House passed the TARP Reform and Accountability Act with executive compensation restrictions - despite the opposition of 90 percent of Republicans. A week later, the President adopted many of those restrictions as a matter of policy on financial rescue assistance. The American Recovery and Reinvestment Act included several provisions to strengthen executive compensation restrictions on recipients of financial assistance from the U.S. Treasury, such as:
- Restricting bonuses for executives that take excessive risks that threaten the company's value;
- Prohibiting any golden parachutes for up to the top 10 senior executives of a company;
- Prohibiting compensation practices that encourage earnings manipulation, or “cooking of the books”;
- Restricting all bonuses for most senior executives, with the number of those covered varying on the basis of the amount of assistance received, certifying compliance with these requirements,
- Instituting a company-wide policy on luxury expenses; and
- Allowing for shareholders to vote on approval of executive compensation packages.
Republicans unanimously opposed this measure.
ACTION ON ABUSES GOING FORWARD
Now, in March 2009, at President Obama's direction and with Congressional urging and under authority included in the Recovery Act, Treasury Secretary Geithner is reviewing executive compensation of senior executives and the next 20 most highly paid employees of TARP-assisted entities, including AIG, with an eye toward retroactive recoupment for the taxpayers.
This week and next, Congress will consider legislative remedies to recover taxpayer funds and stop such egregious abuses going forward.
RESTORING COMMON SENSE
In the coming weeks, the House Financial Services Committee will report out legislation to empower a “macro-regulator” or “systemic risk” regulator to oversee the entirety of the financial system, to ensure that mismanagement, negligence, and excessive risk-taking do not cause the failure of a single large firm that, like AIG, threatened the stability of the entire financial system.