The stimulus bill is about to be signed into law, but debate continues to rage over the executive-pay limits that were inserted into the measure by Senate Democrats.
As we reported yesterday (and Politico follows on today), the Obama administration has several options to slow down or revise the new compensation caps. Issuing a signing statement to invalidate enforcement of the limits are the most unlikely outcome — purely due to the political blowback that would result if Obama borrowed such a famous Bush-era tactic.
Which leaves the year-long window for the Treasury Department to release rules implementing the new pay caps. That certainly sounds like a long enough time to devise a way around the limits, but the financial industry is calling for Treasury to step in much more quickly … in fact, before the week is out.
“The next step is to go to Treasury, so that’s where we’re going to focus on,” Scott Talbott, senior vice president of government affairs at the Financial Services Roundtable, told me. “They have a year to write the regulations, [but] we need guidance now … ideally by the end of the week.”Talbott is particularly concerned with the stimulus’ definition of “incentive compensation,” which he believes could limit the ability of Wall Street banks to pay commissions to salespeople.
The Center on Executive Compensation, a trade group formed by mostly non-financial corporations to battle against CEO pay constraints, is warning that the stimulus rules — which apply only to companies that benefit from the TARP bailout — could be a first step down a slippery slope to more government intervention. From the CEC’s statement on the stimulus:
Although the executive compensation provisions in the economic stimulus bill apply only to TARP recipients, they could set a pattern for other companies at some future point. One of the most far-reaching provisions, which would have capped salaries for all employees at $400,000, was removed, but the concept is now clearly in play.
Despite lobbyists’ eagerness for Treasury to weigh in on the stimulus, the use of hard-and-fast terms in the new pay rules may make it hard to relax them, University of Delaware professor Charles Elson said. “Either people will flee the industry or you’ll have dramatic evasion [of the limits], which is terrible. It’s going to be very hard to write your way around it,” Elson, who teaches at the university’s Center for Corporate Governance, told me.
Elson’s prediction of a “brain drain” from TARP-participating banks in response to the new rules is another popular argument being floated in the media by financial industry lobbyists. But independent executive pay analysts such as Paul Hodgson, of the Corporate Library, tend to put little stock — no pun intended — in K Street’s dire warnings.
“I keep hearing this argument that we’ll get a brain drain,” Hodgson told me. “I’d like to know where they’re going. Two or three investment banks have disappeared. It would seem to me that even for smart people, the labor market is flooded right now with investment bankers. It’s even flooded with CEOs.”