House votes to restrict Wall Street pay

WASHINGTON — The House voted today to slap restrictions on how Wall Street executives are paid after nine banks that took government aid rewarded thousands of their employees with bonuses topping $1 million each.

Bowing to populist anger and defying President Barack Obama’s suggestion that government rely on incentives instead of intervention to curb excessive salaries and bonuses, the House passed the bill on a 237-185 vote.

“This is not the government taking over the corporate sector… . It is a statement by the American people that it is time for us to straighten up the ship,” said Rep. Melvin Watt, D-N.C.

The vote advances the first piece of Obama’s broader proposal to increase oversight of financial institutions. The Senate was expected to take up the package after Congress returns in September from its summer recess.

The House bill includes Obama’s suggestions of giving shareholders a nonbinding vote on compensation packages and prohibiting directors on compensation committees from having a financial relationship with the company and its executives.

The bill goes farther than Obama wanted by prohibiting pay incentives that encourage employees to take financial risks that could threaten the economy or viability of the institution.

Obama said giving shareholders a “say on pay” and diminishing management influence on pay packages would go far in curbing the lavish pay seen at some banks.

But Rep. Barney Frank, D-Mass., who sponsored the bill, said the extra regulation is necessary to ensure bankers and traders aren’t rewarded only if they take big risks. Under the provision banning risky incentive-based pay, regulators would be given nine months to dictate precise guidelines.

The Senate due to address similar legislation after Congress returns in September from its recess.

The House debate came one day after New York Attorney General Andrew Cuomo reported that the nation’s biggest banks kept handing out million-dollar-plus bonuses in 2008 even as profits dwindled and they accepted billions in government aid.

The legislation’s ban on risky compensation would apply to any firm with more than $1 billion in assets, including bank holding companies, broker-dealers, credit unions, investment advisers and mortgage buyers Fannie Mae and Freddie Mac.

Rep. Michael Castle, R-Del., said the effect would be to force “financial institutions who did not contribute to the crisis to pay for the mistakes of others.”

Another Republican, Rep. Jeb Hensarling, said the government would be better off terminating the $700 billion bank bailout program established last year.

“If you quit bailing out risky behavior, Mr. chairman, you’ll receive less risky behavior,” said Hensarling of Texas.

The bill also tries to discourage excessive corporate pay by giving shareholders a nonbinding vote on compensation packages and requiring that compensation committees not have financial relationships with the company and its executives.

During the debate today, Republicans cast the proposal as too liberal for even Obama.

Frank snapped back: “We are not taking orders from the Obama administration,” he said.

Cuomo’s report Thursday concluded that large banks, including Bank of America Corp., Merrill Lynch &Co., JPMorgan Chase &Co. and Goldman Sachs Group Inc., were generous with employee bonuses last year.

Citigroup, which is now one-third owned by the government as a result of the bailout, gave 738 of its employees bonuses of at least $1 million, even after it lost $18.7 billion during the year, Cuomo’s office said.

The New York-based bank received $45 billion in government money and guarantees to protect it against hundreds of billions of dollars in potential losses from risky investments.

Bank of America, which also received $45 billion in government money, paid $3.3 billion in bonuses, with 172 employees receiving at least $1 million and the top four recipients receiving a combined $64 million. Merrill Lynch, which Charlotte, N.C.-based Bank of America acquired during the credit crisis, paid out $3.6 billion, including a combined $121 million to four top employees.

“This egregious behavior proves that Wall Street still doesn’t get that times have changed and the old way of paying executives is long gone,” said Rep. Edolphus Towns, D-N.Y., chairman of the House Oversight and Government Reform Committee.

While the legislation would apply to the broader financial community, firms that have accepted hefty federal bailouts already are under tougher restrictions. Obama has appointed Kenneth Feinberg, a lawyer who oversaw payments to families of victims of the Sept. 11, 2001, terrorist attacks, to monitor compensation at those companies and reject pay plans he deems excessive. Feinberg’s authority does not cover compensation before this year.