They would, however, face no salary cap under the legislation. The presidential order imposed a $500,000 limit on senior executives at several companies receiving extraordinary aid under the federal bailout.
The legislative limits also would be extended to many more companies than the number affected by the Obama order, according to a copy of the $789 billion economic stimulus bill agreed to by House and Senate negotiators late Thursday.
The Obama curbs were limited to a few companies such as AIG, Citigroup, and Bank of America, while the legislation also would apply to the hundreds of banks receiving aid under the $700 billion bailout.
What’s not yet clear is how the legislation, if passed by Congress and signed into law by Obama, would jibe with the provisions of his executive order.
“To the extent that something in the law contradicts something in the executive order, the law will take precedent,” said Brookings Institution scholar Thomas Mann, an expert on the federal government. “Otherwise, they may both be in force.”
The Treasury Department is due to issue specific rules implementing the stimulus legislation within the next year, though Obama could simplify the agency’s task by withdrawing his order, Mann said.
“For now, though, it’s all cloudy,” he said.
Senate Banking Committee Chairman Chris Dodd, D-Connecticut, sponsored the executive-pay provision in the bill.
“These tough new rules will help ensure that taxpayer dollars no longer effectively subsidize lavish Wall Street bonuses,” Dodd said.
Bonuses could be paid only in stock that would vest after the financial institution repays its federal loan, the legislation says. The size of the bonus would be limited to a third of the executive’s total annual compensation.
Bonuses could be “clawed back” if they were found to have been paid on the basis of misleading public statements that inflated the value of the stock.
The average 2007 pay for chief executives at 200 large companies was nearly $12 million, with the vast majority of that compensation coming in the form of bonuses, according to industry studies.
Under the Obama order, the size of executive bonuses was not restricted, though they did have to also take the form of long-term incentives that could vest only after federal aid was repaid.
A $400,000 executive pay cap and stiffer bonus curbs that passed the Senate were removed in conference between senior Senate and House members Thursday.
An amendment sponsored by Sens. Ron Wyden, D-Oregon, and Olympia Snowe, R-Maine, would have penalized companies that paid bonuses greater than $100,000 to executives after getting bailout money.
The legislation being considered Friday prohibits severance packages for the top executives at firms getting federal aid. The Obama order limited these so-called “golden parachutes” to three times the executive’s annual pay.
Under the bill, each company getting more than $25 million in aid would have to establish a board compensation committee made up of independent directors to review employee pay at least semiannually.
“We applaud the absence of a salary cap, which we think would restrict companies’ ability to keep employees they need to turn the companies around,” said Charles Tharp, executive vice president at the Washington-based Center on Executive Compensation, which is funded by member companies. “We also applaud the fact that the boards of directors will have a primary role.”
Under the bill, the restrictions would apply to at least the 25 highest-paid employees at firms receiving more than $500 million, and to at least the 15 highest-paid executives at firms getting between $250 million and $500 million.
At banks getting between $25 million and $250 million in aid, the prohibition would apply to at least the five best-paid executives. It would apply to only the highest-paid employee at firms receiving less than $25 million in aid.
Companies that have received more than $500 million in aid include Citigroup, American International Group, Bank of America, JPMorgan Chase, Wells Fargo, Goldman Sachs, Morgan Stanley, PNC Financial Services Group and US Bancorp.
The legislation also would require all companies getting aid to submit executive compensation to an advisory shareholder vote, a requirement long sought by investor advocates for all companies.
The Treasury secretary also would have to review compensation paid to the top 25 employees of each company that has gotten aid since the assistance began in October.
If these payments were found to be “contrary to the public interest” or the purpose of the legislation, the secretary could negotiate for reimbursement.
The board of any aid recipient must have a company policy for luxury expenditures such as corporate jets, entertainment and office renovations.
Citigroup recently canceled a $50 million purchase of a luxury jet from France after it became public.
The CEO and CFO of each aid recipient also would have to provide written certification that their company is complying with the legislative requirements.
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