Using Tarp to Rein in Bank Pay

The nine big-name banks that are partaking of the $125 billion federal rescue plan have a new reporting requirement. Representative Henry Waxman, the chairman of the powerful House Committee on Oversight and Reform, has sent each bank a letter asking for details of their executive compensation and bonus plans for this year.

The California Democrat said in the letter that public securities filings showed that "these nine banks have spent or reserved $108 billion for employee compensation and bonuses in the first nine months of 2008, nearly the same amount as last year."

Banks are being asked to answer by November 10, a deadline Waxman apparently set because "a significant percentage of this compensation could come in year-end bonuses."

He also wrote that experts have suggested "that the size of the bonuses will be significantly enhanced as a result of the infusion of taxpayer funds." The amount of bonuses could exceed $6 billion at some firms, he added.

While banks can't be forced to meet the deadline, their executives will probably be mindful that the committee can subpoena information and witnesses for hearings. Last March, the committee called three top executives of companies hit by the subprime lending debacle for a public grilling. That included Angelo Mozilo of Countrywide Financial, the country's biggest mortgage lender, and Stan O'Neal, former chief executive of Merrill Lynch and Charles Prince, former chief executive of Citigroup.

The financial institutions receiving the letter were: Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JP Morgan Chase, Merrill Lynch, Morgan Stanley, State Street Corporation, and Wells Fargo.

Waxman's letter seemed to be intended as a warning to Wall Street, whose big year-end payouts have drawn fire in the past.

Specifically, the committee asked the nine banks to each list the total compensation and average compensation, broken down by salary, cash, and equity bonuses and benefits.

And - as much criticism has centered on the sometimes unclear reasons why company boards raise compensation - he asked for a description for the reasons for changes in these bonuses in each of three years, 2006, 2007 and 2008.

For those same years, he asked for the number of employees who were paid - or will be paid this year - more than $500,000 in total compensation and for the packages paid to the 10 highest paid employees. He asked for the details, including the reason for changes.

He also asked for documents explaining all the policies governing bonuses for those employees.

Companies have been able to deduct almost without limit their executive pay but proposed Treasury Department regulations would have to abide by new limits. That is likely to mean that compensation exceeding $500,000 would not be tax deductible - something that could discourage but not prevent companies from adopting that as a pay ceiling.

Elizabeth Olson

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