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US Congress wants say on Wall Street pay

(Agencies)
Updated: 2009-08-01 00:35

WASHINGTON: The House of Representatives moved toward passing legislation Friday reining in salaries and bonuses for high-paid executives, a day after the disclosure that nine banks that got billions of dollars in US government bailout money had awarded bonuses of more than $1 million each to some 4,800 employees.

Democrats, who blame excessive salaries and bonuses for contributing to the financial crisis, are pushing the bill to ban pay plans that encourage employees at large firms to take "inappropriate risks." It was expected to pass the House Friday, with the Senate due to address similar legislation after Congress returns in September from its recess.

The debate came one day after New York Attorney General Andrew Cuomo reported that the nation's biggest banks kept handing out million-dollar-plus bonuses in 2008 even as profits dwindled and they accepted billions in government aid.

"This is not the government taking over the corporate sector. . . . It is a statement by the American people that it is time for us to straighten up the ship," said Rep Melvin Watt, a Democrat.

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Republicans are reluctantly pushing back. They say they understand voter outrage but that severe restrictions should be imposed only on banks that accept government aid.

The legislation's ban on risky compensation would apply to any firm with more than $1 billion in assets, including bank holding companies, broker-dealers, credit unions, investment advisers and mortgage buyers Fannie Mae and Freddie Mac.

Rep Michael Castle, a Republican, said the effect would be to force "financial institutions who did not contribute to the crisis to pay for the mistakes of others."

Another Republican, Rep. Jeb Hensarling, said the government would be better off terminating the $700 billion bank bailout program established last year.

"If you quit bailing out risky behavior, Mr. chairman, you'll receive less risky behavior," said Hensarling.

The bill also tries to discourage excessive corporate pay by giving shareholders a nonbinding vote on compensation packages and requiring that compensation committees not have financial relationships with the company and its executives.

President Barack Obama had asked Congress to give shareholders "say on pay" and diminish management influence on compensation as part of a broader proposal to reform financial regulations. Frank embraced the idea but added the outright ban on risky incentives.

Cuomo's report Thursday concluded that large banks, including Bank of America Corp., Merrill Lynch & Co, JPMorgan Chase & Co. and Goldman Sachs Group Inc, were generous with employee bonuses last year.

Citigroup, which is now one-third owned by the government as a result of the bailout, gave 738 of its employees bonuses of at least $1 million, even after it lost $18.7 billion during the year, Cuomo's office said.

The New York-based bank received $45 billion in government money and guarantees to protect it against hundreds of billions of dollars in potential losses from risky investments.

Bank of America, which also received $45 billion in government money, paid $3.3 billion in bonuses, with 172 employees receiving at least $1 million and the top four recipients receiving a combined $64 million. Merrill Lynch, which Bank of America acquired during the credit crisis, paid out $3.6 billion, including a combined $121 million to four top employees.