Sunday, September 28, 2008

CEO compensation and the bailout

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It will be the first time in American history that there will be legislative restrictions on CEO compensation,'' said House Financial Services Chairman Barney Frank, Democrat of Massachusetts. Lawmakers want to announce a firm agreement before Asian financial markets open late today, Senate Majority Leader Harry Reid said. The deadline reflects concern that markets will be further rocked by lack of an agreement after the Standard & Poor's 500 index recorded its largest weekly drop since May. Treasury Secretary Paulson last night said the proposed deal ``will work and be effective.'' More work needs to be done, ``but I think we're there,'' he said. Government Bailouts Paulson and Federal Reserve Chairman Ben S. Bernanke proposed the plan after the collapse and bankruptcy of Lehman Brothers Holding Inc. and the Federal Reserve's takeover of American International Group Inc. earlier this month. They said it was needed to revive lending and restore the flow of credit to the U.S. economy. President George W. Bush warned yesterday that legislative action was needed to avoid a ``deep and painful recession.'' Bush spokesman Tony Fratto said early this morning that administration officials are ``pleased with the progress tonight and appreciate the bipartisan effort to stabilize our financial markets and protect our economy.'' He said Bush had spoken last night with House Speaker Nancy Pelosi on the negotiations. The proposal immediately provides $250 billion, and another $100 billion could be used at the request of the president. Congress would have to review the expenditure of the remaining $350 billion, according to an outline distributed to reporters. The package includes a provision aimed at ``preventing golden parachutes'' for executives of companies who leave firms that have sold troubled assets to the government, said Senator Kent Conrad, a North Dakota Democrat. Stock Warrants Companies that sell debt to the government will issue stock warrants to the government so that taxpayers ``can gain as companies recover'' from economic difficulties, Conrad said. House Republicans initially balked at the cost of Paulson's plan. Missouri Representative Roy Blunt, the lead negotiator for House Republicans, said his colleagues wanted to ``bring both free-market principles and taxpayer protections to the table.'' ``I think we will be able to have an announcement'' later today, Blunt said. Republican leadership aides said that provisions favored by unions that own significant stakes in companies through pension plans were dropped. That includes a requirement for shareholder votes on executive-compensation issues. At one point during the negotiations, billionaire Warren Buffett spoke by telephone to a lawmaker involved in the talks to offer ``his best thinking about market reaction to various things,'' said Conrad. ``People are trying to reach out to the best minds that they know.''

CEO pay emerges as bailout barrier
CEO pay emerges as bailout barrier ... appropriate standards for executive compensation.” ... Take the bail-out with our conditions or let your ...
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The World Newser
In short, the White House is weighing in on whether Congress, in return for the taxpayer bail out, should demand limits on CEO compensation at the companies being rescued.
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NewsDaily: CEO pay pressure builds due to Wall Street bailout
... see the U.S. government's proposed $700 billion bailout of Wall Street as a big opportunity to curb CEO pay ... an advisory "say on pay" vote on top executives' compensation. A ...
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Bank Executive Compensation and the Bailout - Seeking Alpha
... do something now to prevent free money being handed out to executives as a result of a taxpayer bailout of the financial industry. The table below contains data on CEO compensation ...
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CEO pay emerges as bailout barrier - Yahoo! News
CEO pay emerges as bailout barrier ... that Treasury also demand “appropriate standards for executive compensation.”
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Bailout Could Increase Confidence, Help Economy
Amid the confusion of the financial crisis and the government's hurried consideration of a bailout ... Regardless of where you stand on the bailout, many of you tell us that CEO compensation should be reduced.
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Source: ABC News
NewsDateTime: 3 hours ago

U.S. bailout plan to tackle CEO pay
The issue of excessive compensation and its role in the meltdown of the U.S. banking sector has won its way onto the long list of fixes to be included in a proposed $700-billion (U.S.) bailout package for financial firms. Both Republicans and ...
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Source: Globe and Mail
NewsDateTime: 9/24/2008

Bailout backlash (pg. 2)
... already at 5.4%, and the government needing to sell hundreds of billions of dollars in new bonds to finance the bailout ... Average CEO compensation has also caught the attention of the public and politicians.
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Source: CNN Money
NewsDateTime: 2 hours ago

Bailout Gallery
... could get multi-million-dollar severance pay — known as golden parachutes — while CEO ... recoup the $700 billion, more help for homeowners facing foreclosure and rules governing compensation for executives of companies participating in the bailout
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Source: CNBC
NewsDateTime: 5 hours ago

TEXT-US House speaker's statement on bailout deal
TEXT-US House speaker's statement on bailout deal 09.28.08, 6:40 AM ET ... CEO and executive compensation for participating companies: - No multi-million dollar golden parachutes - Limits CEO compensation ...
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Source: Forbes
NewsDateTime: 7 hours ago

The details of the bailout deal

From Office of Speaker Nancy Pelosi -- Sept. 28, 2008

Significant bipartisan work has built consensus around dramatic improvements to the original Bush-Paulson plan to stabilize American financial markets -- including cutting in half the Administration's initial request for $700 billion and requiring Congressional review for any future commitment of taxpayers' funds. If the government loses money, the financial industry will pay back the taxpayers.
3 Phases of a Financial Rescue with Strong Taxpayer Protections
# Reinvest in the troubled financial markets … to stabilize our economy and insulate Main Street from Wall Street
# Reimburse the taxpayer … through ownership of shares and appreciation in the value of purchased assets
# Reform business-as-usual on Wall Street … strong Congressional oversight and no golden parachutes
Democrats have insisted from day one on substantial changes to make the Bush-Paulson plan acceptable -- protecting American taxpayers and Main Street -- and these elements will be included in the legislation
Protection for taxpayers, ensuring THEY share IN ANY profits
# Cuts the payment of $700 billion in half and conditions future payments on Congressional review
# Gives taxpayers an ownership stake and profit-making opportunities with participating companies
# Puts taxpayers first in line to recover assets if participating company fails
# Guarantees taxpayers are repaid in full -- if other protections have not actually produced a profit
# Allows the government to purchase troubled assets from pension plans, local governments, and small banks that serve low- and middle-income families
Limits on excessive compensation for CEOs and executives
New restrictions on CEO and executive compensation for participating companies:
# No multi-million dollar golden parachutes
# Limits CEO compensation that encourages unnecessary risk-taking
# Recovers bonuses paid based on promised gains that later turn out to be false or inaccurate
Strong independent oversight and transparency
Four separate independent oversight entities or processes to protect the taxpayer
# A strong oversight board appointed by bipartisan leaders of Congress
# A GAO presence at Treasury to oversee the program and conduct audits to ensure strong internal controls, and to prevent waste, fraud, and abuse
# An independent Inspector General to monitor the Treasury Secretary's decisions
Transparency -- requiring posting of transactions online -- to help jumpstart private sector demand
# Meaningful judicial review of the Treasury Secretary's actions
Help to prevent home foreclosures crippling the American economy
# The government can use its power as the owner of mortgages and mortgage backed securities to facilitate loan modifications (such as, reduced principal or interest rate, lengthened time to pay back the mortgage) to help reduce the 2 million projected foreclosures in the next year
# Extends provision (passed earlier in this Congress) to stop tax liability on mortgage foreclosures
# Helps save small businesses that need credit by aiding small community banks hurt by the mortgage crisis—allowing these banks to deduct losses from investments in Fannie Mae and Freddie Mac stocks

The administration had initially requested virtually unfettered authority to operate the bailout program. But as they moved toward clinching a deal, both sides appeared to have given up a number of contentious proposals, including a change in the bankruptcy laws sought by some Democrats to give judges the authority to modify the terms of first mortgages. Congressional leaders and Treasury Secretary Henry M. Paulson Jr. emerged from behind closed doors to announce the tentative agreement at 12:30 a.m. Sunday, after two days of marathon meetings. “We have made great progress toward a deal, which will work and be effective in the marketplace,” Mr. Paulson said at a news conference in Statuary Hall in the Capitol. In the final hours of negotiations, Democratic lawmakers, including Representative Rahm Emanuel of Illinois and Senator Kent Conrad of North Dakota, carried pages of the bill by hand, back and forth, from Speaker Nancy Pelosi’s office, where the Democrats were encamped, to Mr. Paulson and other Republicans in the offices of Representative John A. Boehner of Ohio, the House minority leader. At the same time, a series of phone calls was taking place, including conversations between Ms. Pelosi and President Bush; between Mr. Paulson and the two presidential candidates, Senator John McCain and Senator Barack Obama; and between the candidates and top lawmakers. “All of this was done in a way to insulate Main Street and everyday Americans from the crisis on Wall Street,” Ms. Pelosi said at the news conference. “We have to commit it to paper so we can formally agree, but I want to congratulate all of the negotiators for the great work they have done.” In a statement, Tony Fratto, the deputy White House press secretary, said: “We’re pleased with the progress tonight and appreciate the bipartisan effort to stabilize our financial markets and protect our economy.” A senior administration official who participated in the talks said the deal was effectively done. “I know of no unresolved open issues for principals,” the official said. In announcing a tentative agreement, lawmakers and the administration achieved their goal of sending a reassuring message ahead of Monday’s opening of the Asian financial markets. Lawmakers, especially in the House, are also eager to adjourn and return home for the fall campaign season. Mr. Obama and Mr. McCain both expressed support for the rescue package early on Sunday, while adding that it was hardly a moment for taxpayers to cheer. “This is something that all of us will swallow hard and go forward with,” Mr. McCain said in an interview on ABC’s “This Week.” “The option of doing nothing is simply not an option.” Mr. Obama, in a statement, said: “When taxpayers are asked to take such an extraordinary step because of the irresponsibility of a relative few, it is not a cause for celebration. But this step is necessary.” The backing of the presidential candidates will be crucial to Congressional leaders seeking to generate votes for the bailout plan among lawmakers, especially those up for re-election in November. The general public has bristled at the notion of risking $700 billion in taxpayer funds to address mistakes on Wall Street, and many constituents have urged their elected officials to vote against the plan. Among the last sticking points was an unexpected and bitter fight over how to pay for any losses that taxpayers may experience after distressed debt has been purchased and resold. Democrats had pushed for a fee on securities transactions, essentially a tax on financial firms, saying it was fitting that they contribute to the cost. In the end, lawmakers and the administration opted to leave the decision to the next president, who must present a proposal to Congress to pay for any losses.

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