The Obama administration on Wednesday will name a pay czar with the power to reject compensation plans for top employees at companies receiving “exceptional” government aid, an administration official said Wednesday.
The administration will also call for “say-on-pay” legislation that would give the Securities and Exchange Commission authority to require public companies to hold non-binding shareholder votes each year on executive pay, the official, who requested anonymity, said.
The pay czar, or “special master,” will review compensation structures for the top 100 salaried employees of firms receiving exceptional assistance, such as Bank of America , Citigroup and insurer AIG, the official said.
Kenneth Feinberg, who oversaw the government’s compensation to the survivors of the Sept. 11, 2001, terror attacks, will be given the pay czar role, a source familiar with the administration’s plan said on Monday.
U.S. Treasury Secretary Timothy Geithner, who has said Wall Street compensation practices became “divorced from reality,” met on Wednesday to discuss bank pay with Securities and Exchange Commission Chairman Mary Schapiro, Federal Reserve Governor Daniel Tarullo and other compensation experts.
Geithner was expected to deliver brief public remarks during a brief open portion of the meeting shortly after noon.
President Barack Obama has argued that pay structures at financial firms encouraged excessive risk-taking, sowing the seeds of a financial crisis that drove the United States and many other countries around the globe into recession.
The official said the administration would also propose legislation that would require compensation committee members at companies listed on national securities exchanges to be independent from management and answerable only to the compensation committee and its independent advisers and legal counsel.
Separately, an official said late Tuesday night that the administration would unveil by the end of the week new rules governing executive pay at firms receiving government aid.
In early February, the administration had said it would put a $500,000 per year cap on the salaries of executives at firms in which it pumped in fresh aid from the government’s $700 billion rescue fund. Any compensation above that amount was to have been in restricted stock or a similar long-term bonus incentive.
Officials determined that plan was not optimal after Congress passed legislation requiring that bonuses account for no more than one-third of an executive’s compensation. If coupled with the administration’s planned salary cap, that would limit annual compensation to $750,000.
The official said the congressional limit on bonuses led the administration to find an alternative way to ensure pay practices were not excessive at companies most heavily reliant on bailout money.
The new rules to be outlined this week would apply to the top five senior executive officers at companies supported by the Treasury Department’s Troubled Asset Relief Program, or TARP, plus the next 20 highly paid employees, even if they do not serve in an executive role, the official added.
The push for “pay-or-say” legislation is part of a broader effort by U.S. officials to influence pay practices across the financial industry at large.
The Federal Reserve has said it plans to use its authority to promote healthier compensation structures, and Geithner told lawmakers Tuesday that the SEC may seek new powers that would allow it to encourage compensation reform at publicly traded companies.
“As you’ll hear from us in the next few days, the SEC has some important responsibilities and obligations in this area, and some tools and authorities they may seek,” Geithner told a Senate Appropriations subcommittee.
(Additional reporting by Tim Ahmann and Karey Wutkowski; Editing by Leslie Adler)
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