U.S. Sen. Christopher Dodd, D-Conn., put it in stark terms: "Save their pay or save capitalism."
Dodd was ramrodding an effort to tighten limits on paychecks for executives of banks that receive federal bailout money. Dodd succeeded in adding limits that were more aggressive even than those sought by the Obama administration.
White House officials, in fact, had appealed to congressional Democrats to stick with Obama's earlier proposal. But Democrats, working over the weekend, ultimately went for the tougher standards.
Obama's proposed restrictions applied only to banks that receive "exceptional assistance" from the government. His plan set a $500,000 cap on pay for top executives and limited bonuses or additional compensation to restricted stock that could be claimed only after the bank had paid the government back.
But Dodd's proposal, which was included in the stimulus bill Obama is expected to sign today, was wider ranging. It set executive bonus limits on all banks that receive federal assistance from the $700 billion bailout fund. The number of executives affected by the caps would depend on the amount of money their banks receive. But most top executives would be prohibited from receiving bonuses higher than one-third of their annual compensation.
The bill doesn't affect contracts signed before Feb. 11, and it places no limit on base salary pay. But proponents argue that the most egregious excesses have come in the form of bonuses, which are far more restricted in the final version of the bill.
Both Obama and Dodd saw the need to limit executive compensation. In this case, however, we think Dodd read the mood of the American public more accurately.
People who will never come close to making $500,000 a year and who might have lost their homes and/or their jobs need reassurance that bankers won't be getting rich from bailouts funded by taxpayers. Obama will have a hard enough time convincing the public that propping up ailing banks is necessary without having to worry that top executives still are walking off with huge bonuses.
And this is not likely to be the last installment of the bank bailouts.
Average Americans might accept the need to ensure that banks are sound and able to lend money to revive the economy. But, as Dodd asserted, they surely would balk at continuing to reward executives who had, in effect, led their institutions over a cliff.
Limiting executive pay for executives who are receiving federal help is more than a symbolic gesture. It is a declaration that the vast disparity between what average workers are paid and the gargantuan salary and bonus packages for top executives -- even when their companies fail to perform -- is ethically intolerable.
The potential to get rich is a big component of the American dream. No one wants to stand in the way of the entrepreneurs who, by getting rich, create new jobs and new opportunities for others.
But the financial meltdown has demonstrated that compensation at many companies no longer is tied in any valid way to performance. Setting compensation limits for executives whose companies are taking federal money is only fair.
Public demands limits on pay for top executives whose banks take bailout money.
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