US impose salary rules on execs
(23 October 2009 – USA) The US Treasury and Federal Reserve have set out new salary rules in an effort to curb risk in the financial system.
The Federal Reserve is proposing that it more aggressively regulates compensations practices at banks under its control, including thousands of US banks and all of the American subsidiaries of overseas firms.
The objective of the central bank is to ensure that compensation packages appropriately tie rewards to long-term performance and do not create undue risk for firms or the financial system.
Kenneth Feinberg, the government’s specialist master for compensation, announced that cash salaries for top executives at seven firms that received significant government assistance will be limited to US$500,000 (A$542,000), and their total compensation will be cut by 50 percent.
The decision will only be enforced for November and December this year. If the whole year was counted the employees would have had to repay salaries they had already received.
However, the ruling for 2009 will be the base point for salaries in 2010, and will remain for as long as the companies hold onto their government bailout funds.
The rulings cover 175 employees at firms that have received the large government aid. The Federal government is not in favour of pay caps and has said that a ‘one size fits all’ approach would not be appropriate.
The federal government also has plans to review policies at 28 major banks to ensure compensation practices don’t encourage excessive risk taking.
Some members of the Group of 20 nations, such as Germany and France, had been pushing for countries to cap bankers' pay. Separately, some have suggested that regulators require as much as 60 percent of executive compensation at large, complex banking organisations be deferred, with much of it being paid in stock, options or similar instruments.
The objective of the central bank is to ensure that compensation packages appropriately tie rewards to long-term performance and do not create undue risk for firms or the financial system.
Kenneth Feinberg, the government’s specialist master for compensation, announced that cash salaries for top executives at seven firms that received significant government assistance will be limited to US$500,000 (A$542,000), and their total compensation will be cut by 50 percent.
The decision will only be enforced for November and December this year. If the whole year was counted the employees would have had to repay salaries they had already received.
However, the ruling for 2009 will be the base point for salaries in 2010, and will remain for as long as the companies hold onto their government bailout funds.
The rulings cover 175 employees at firms that have received the large government aid. The Federal government is not in favour of pay caps and has said that a ‘one size fits all’ approach would not be appropriate.
The federal government also has plans to review policies at 28 major banks to ensure compensation practices don’t encourage excessive risk taking.
Some members of the Group of 20 nations, such as Germany and France, had been pushing for countries to cap bankers' pay. Separately, some have suggested that regulators require as much as 60 percent of executive compensation at large, complex banking organisations be deferred, with much of it being paid in stock, options or similar instruments.
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