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Geithner Mulls Capping Exec Pay Tax Deduction—for All U.S. Companies

The Treasury secretary nominee said he would consider ‘extending at least some of the TARP provisions and features of the $500,000 cap to U.S. companies generally.’

September 16, 2011
Related Topics: Financial Impact, Compensation Design and Communication, Latest News
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Treasury Secretary-nominee Timothy Geithner said he might try to extend to all U.S. companies a restriction that prohibits bailout banks from taking a tax deduction of more than $500,000 in pay for each executive.

The Troubled Assets Relief Program legislation enacted in October seeks to give companies receiving federal aid under the $700 billion rescue a number of incentives to curb what it calls excessive executive compensation.

Geithner, whose nomination was confirmed by the Senate Finance Committee and still has to be voted on by the full Senate, said he would consider “extending at least some of the TARP provisions and features of the $500,000 cap to U.S. companies generally.”

He added that he also would consider extending to all U.S. companies “other rules beyond those potentially in effect.”

“A number of the provisions that accompany the $500,000 cap are worthy of being considered for broader application,” Geithner said in written responses to questions submitted by Sen. Carl Levin, D-Michigan, who released the exchange Friday, January 23.

Geithner, 47, did not specify what provisions he had in mind. He was responding to a question from Levin that said the $500,000 cap seeks “to end taxpayer subsidies of excessive executive pay.”

Under the legislation, banks receiving bailout money must limit golden parachute payments to senior executives to no more than three times the executives’ base pay. The companies also must subject any bonuses or incentives to clawbacks if the payouts are based on banks’ misleading financial statements.

In addition, bailout recipients can’t offer top managers incentives that “encourage unnecessary and excessive risks that threaten the value of the financial institution.”

These limits apply to the CEO, CFO and the next three mostly highly compensated executives in a bank receiving rescue cash.

A week ago the Treasury also mandated that bank CEOs getting bailout money certify that they are complying with these executive compensation limits.

Geithner couched his response by saying that details of any policy change “require careful analysis, including a review of the newly enacted tax code limitations on offshore deferred compensation.”

There have been three previous statutory attempts to rein in executive compensation dating to 1984, he said.

“Each has faced challenges for different reasons, and some may even have exacerbated the problem they were designed to address,” Geithner said.

Filed by Neil Roland of Financial Week, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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