Obama caps executive salaries of firms seeking federal aidFebruary 5th, 2009 - 4:55 am ICT by IANS
Washington, Feb 5 (DPA) US President Barack Obama Wednesday announced tough restrictions on the salaries of Wall Street executives seeking government aid and slammed financial firms for shirking their responsibilities as the country suffers a severe recession.The new rule will limit executives from companies getting “exceptional assistance” from the government to a salary of $500,000 per year. Obama described it as as a “fraction” of the millions of dollars that top executives typically receive.
“We all need to take responsibility,” Obama said at the White House. “This includes executives at major financial firms who turned to the American people, hat in hand, when they were in trouble, even as they paid themselves customary lavish bonuses.”
Wall Street firms have lost hundreds of billions of dollars in assets related to the US housing-market downturn. Yet a report by the New York State Comptroller last week said companies paid out $18.4 billion in cash bonuses during 2008, a 44-percent drop from 2007 but still the sixth-largest bonus year on record.
“We’re going to be demanding some restraint in exchange for federal aid,” Obama said, describing the companies’ past practices as “shameful” and the “height of irresponsibility.”
The new restrictions come as the administration plans to unveil a series of fresh proposals next week to help stabilise the financial system. Many US banks remain under threat of bankruptcy.
Banks have sharply restricted lending to the wider public in order to hold onto much-needed cash, sparking a massive cutback in consumer spending in the US. Congress approved a $700-billion economic rescue package in October to stave off a collapse of the financial industry.
The Wall Street bonuses have sparked outrage among the US public, which suffered some 2.6 million job cuts last year, as well as lawmakers who have criticized banks for not using taxpayer funds to free up lending to consumers.
“We certainly believe that success should be rewarded. But what gets people upset, and rightfully so, are executives being rewarded for failure - especially when those rewards are subsidized by US taxpayers,” Obama said.
The salary cap will be in place as long as financial firms are holding government funds. Executives can also receive additional pay in the form of restricted stock, which could only be cashed in once the firm has paid back the government.
The new rules will also force companies to be more transparent in their corporate purchases, such as private jets.
The cost of Obama’s new effort to stabilize the financial industry could run to $2 trillion, according to US media reports. His plans may include the creation of a so-called “bad bank” that would take the troubled mortgage-related assets off the balance sheets of banks.