The bill authorizes the federal purchase of troubled assets from banks and other financial institutions to avert a systemic Wall Street failure. Firms participating in the program would have to agree to curbs on executive pay.
The pay provisions have remained intact since a bipartisan agreement was announced on September 28 after more than a week of sometimes tense congressional negotiations.
The final bill was amended by the Senate to include a raft of tax breaks, higher limits on deposit insurance and legislation that would require cost and coverage parity between mental health and medical benefits in insurance plans that offer both.
Following the 228-205 House defeat of the bill on September 29, the stock market plummeted 777 points. Seeking to give the measure new momentum, the Senate added sweeteners and passed it 74-25 on Wednesday night, October 1.
Ever since the initial House failure, fostered by caustic constituent reaction to the bailout proposal, business groups and other proponents have fiercely lobbied wavering lawmakers.
They warned that the bill’s demise could grind the Main Street economy to a halt, pointing out that a credit freeze already was severely limiting loans for consumers, students and businesses.
The gravity of the moment was apparent during the House debate on Friday. Minority Leader John Boehner, R-Ohio, described the decision as “probably one of the most serious votes we’ll ever cast.”
The Bush administration and the business community initially were cool to including executive pay restrictions in the package. But the provisions were part of the oversight added to the bill to secure bipartisan support. The original three-page administration proposal grew into the 110-page final measure bailout portion of the final measure.
“Our message to Wall Street is, the party is over,” House Speaker Nancy Pelosi, D-California, said in a floor speech just before Friday’s vote.
Under the bill, a company that sells assets directly to the government would be barred from giving golden parachute severance packages to departing executives and would be compelled to “exclude incentives for executive officers … to take unnecessary and excessive risks.” The company also would have to recover bonus or incentive compensation paid to a senior executive based on performance measures that later proved inaccurate.
If a firm sells more than $300 million in assets to the government at an auction, it would be prohibited from offering golden parachutes to newly hired senior executives. The company would be subject to a 20 percent excise tax on golden parachute payments to fired executives. Compensation above $500,000 would not be tax-deductible.
“It’s not unreasonable for the government to have control and oversight on compensation for companies that sell assets to the government,” said Tom Lehner, policy director at the Business Roundtable, a Washington group representing CEOs of large companies.
It won’t be clear how restrictions on executive compensation will work until the Treasury Department writes corresponding regulations.
Charles Tharp, executive vice president for policy at the Center on Executive Compensation in Washington, is concerned that amorphous definitions could hamper corporations.
“I don’t know how you comply with vague statements like ‘inappropriate’ or ‘excessive’ risk,” Tharp said. “I don’t know what excessive risk is. It really ties the hands of the board.”
He also warned that the golden parachute limits could prevent weak firms from finding new leaders. “Severance gives someone an incentive to join a troubled company and turn it around,” Tharp said.
The bill also changes rules governing health insurance plans that cover 113 million people. The mental health parity measure does not mandate that insurers offer mental health coverage. But if they do, it cannot be more restrictive than coverage for medical and surgical benefits.
Under current law, lifetime annual benefits for each category must be on par. The parity measure requires equality for deductibles, co-payments, out-of-pocket expenses, coinsurance, covered hospital days and covered outpatient visits.
The legislative journey for the mental health bill included a unique collaboration among business groups, insurance companies and mental health advocates who forged a compromise over three years of negotiations.
The bill would “end the discrimination against those who seek treatment for mental illness,” Pelosi said.
—Mark Schoeff Jr.
Workforce Management's online news feed is now available via Twitter