6 Feb 2009

Obama limits executive pay for bailout companies

6:03 am on 6 February 2009

President Barack Obama has imposed tough new rules capping executive pay at $US500,000 a year for companies receiving taxpayer funds, and limiting lavish severance packages paid to top officials.

"In order to restore our financial system, we've got to restore trust. And in order to restore trust, we've got to make certain that taxpayer funds are not subsidizing excessive compensation packages on Wall Street," he said.

Mr Obama had sharply criticized Wall Street chiefs for accepting billions of dollars in bonuses last year while the economy staggered toward collapse.

The restrictions are a first step in a broad effort to overhaul pay practices and are likely to be popular with average Americans who have been reeling from job losses as the recession bites.

President Obama's call for pay limits mirrors efforts made or under consideration in other countries hit by the global economic downturn.

European Union finance ministers have said managers of bailed-out European banks should "not retain undue benefit," but imposed no specific limit, leaving it instead to member states.

Germany plans to set a 500,000 euro pay limit for executives at rescued banks as well as ban on bonuses and stock-option grants.

An Obama administration official said the new US rules would require companies that get exceptional government funds in future to abide by the cap.

Additional compensation must be limited to restricted stock that does not vest until government money is paid back with interest, according to the new rules.

Companies that have previously received bailout money, such as financial giant Citigroup and insurer AIG, would have to agree to stricter oversight and prove they have followed already established limits on executive compensation, which are widely seen as being too lax.