No subject

FEBRUARY 14, 2009
Bankers Face Strict New Pay Cap
Stimulus Bill Puts Retroactive Curb on Bailout Recipients; Wall Street =
Fumes

By DEBORAH SOLOMON and MARK MAREMONT
WASHINGTON -- The giant stimulus package that cleared Congress Friday=20
includes a last-minute addition that restricts bonuses for top earners =
at=20
firms receiving federal cash -- including those that already received it =
-- =20
more severely than the Obama administration's previous pay limits.

The most stringent pay restriction bars any company receiving funds from =

paying top earners bonuses equal to more than one-third of their total=20
annual compensation. That could severely crimp pay packages at big =
banks,=20
where top officials commonly get relatively modest salaries but often =
huge=20
bonuses.

As word spread Friday about the new and retroactive limit -- inserted by =

Democratic Sen. Christopher Dodd of Connecticut -- so did consternation =
on=20
Wall Street and in the Obama administration, which opposed it.

Companies that have received federal bailout funds can't pay top earners =
a=20
bonus equal to more than one-third of their total annual pay.

For example: An employee with $1 million pay could receive a bonus of no =

more than $500,000. That figure equals one third of the $1.5 million =
total=20
pay.

The administration is concerned the rules will prompt a wave of banks to =

return the government's money and forgo future assistance, undermining =
the=20
aid program's effectiveness. Both Treasury Secretary Timothy Geithner =
and=20
Lawrence Summers, who heads the National Economic Council, had called =
Sen.=20
Dodd and asked him to reconsider, these people said.

In contrast to executive-pay rules announced recently by the White =
House,=20
those in the stimulus bill -- which cleared the House and Senate Friday =
and=20
is headed to the White House for President Barack Obama to sign into law =
-- =20
doesn't apply just to top executives but could reach into the ranks of=20
highly paid traders and department heads. The rules apply to any company =

that has received aid under the bailout program since it began in =
October.

The number of a company's employees affected increases on a sliding =
scale,=20
depending how much federal money the firm receives. More than 350 banks =
have=20
gotten funds from the government's formal investment program. In =
addition,=20
the government has proffered aid to insurer American International Group =

Inc., to auto makers General Motors Corp. and Chrysler LLC, and to =
Citigroup=20
Inc. and Bank of America Corp.

In speaking to Mr. Dodd, Messrs. Geithner and Summers also expressed =
concern=20
over another provision he inserted that lets banks and other aid =
recipients=20
pay back aid more easily. It says banks would no longer have to raise =
new=20
private capital to replace the government's funds in order to repay it. =
Some=20
government officials fear the result could be that banks lose their =
capital=20
cushions and thus become even more wary of lending.

Sen. Dodd said in a statement that "the decisions of certain Wall Street =

executives to enrich themselves at the expense of taxpayers have =
seriously=20
undermined public confidence in efforts to stabilize the economy.... =
With=20
vigorous oversight by the Treasury Department and by Congress, these =
tough=20
new rules will help ensure that taxpayer dollars no longer effectively=20
subsidize lavish Wall Street bonuses."

With so much riding on the stimulus bill, President Obama is expected to =

sign it despite his concerns. The pay-limit language in the stimulus =
bill is=20
vague and open to interpretation. It isn't clear, for example, whether =
the=20
value of stock options should be included in the calculation of total=20
compensation. The provision could be altered somewhat by the Treasury, =
which=20
would be in charge of implementing the regulations.

A White House spokesman said, "As he has already expressed, the =
president=20
shares a deep concern about excessive executive compensation at =
financial=20
firms that are receiving extraordinary assistance from American =
taxpayers.=20
He looks forward to working with Congress to responsibly address this =
issue.=20
Members of the administration contacted members of Congress with =
suggested=20
technical changes toward that end."

Congressional aides said the bonus provision means an executive could=20
receive a bonus equal to as much as 50% of salary. For instance, a =
$500,000=20
bonus for someone with a $1 million salary would meet the test because =
the=20
bonus would make up no more than a third of the person's $1.5 million in =

total compensation.

Under the bill, bonuses can be paid only in restricted stock, which=20
recipients couldn't cash in until the Treasury is repaid.

Bank of America Corp. CEO Kenneth D. Lewis was paid $16.4 million in =
2007,=20
of which just $1.5 million was in salary, according to company filings. =
The=20
rest included $11.5 million in bonus, stock-option awards and restricted =

stock. Assuming the same salary level, Mr. Lewis's 2009 pay under one=20
interpretation of the stimulus legislation would be limited to about =
$2.25=20
million. The bank declined to comment. J.P. Morgan Chase & Co. CEO James =

Dimon earned $1 million in salary in 2007, but his total pay was more =
than=20
$30 million, almost all in incentive-based bonus and awards of =
restricted=20
stock.

 Many Wall Street bosses, including Messrs. Lewis and Dimon, chose to =
forgo=20
their bonuses related to 2008 performance. But others further down in =
their=20
banks could find their future pay packages much slimmer than they =
expected.

The bill carves out an exception for those whose employment contracts=20
require payment of an annual bonus. Some top finance-industry executives =

don't have contracts; the language in others' agreements may or may not=20
exempt them from the restrictions.

The limits build on executive-pay rules announced earlier this month by =
the=20
Obama administration. Those include salary caps for certain firms =
receiving=20
capital injections in the future from the Troubled Asset Relief Program. =

These rules would set a $500,000 cap on executive pay at firms that =
accept=20
"extraordinary assistance." So far, no firm has fallen under this limit. =
The=20
Obama rules have looser salary caps for firms that get more-general aid.

The Dodd rules don't mention salary caps and concentrate instead on=20
incentive-based pay.

The stimulus bill says that for companies that receive more than $500=20
million in federal money, as many as 25 executives can be covered by pay =

limits. The numbers ratchet down for banks that received smaller sums.

Language in the contracts banks signed when banks took money from the =
TARP=20
allowed the government to change terms retroactively. Still, "I'll bet =
you=20
will see in the next month or so, banks paying back the government," =
said=20
Alan M. Levine, an executive-pay attorney at Morrison Cohen LLP in New =
York.=20
"They don't want to run their business under these restrictions."

Mr. Levine said the bonus restrictions could result in companies =
shifting=20
more pay for top officials to salaries, away from incentive-based pay.=20
Corporate-governance advocates seek to move in the opposite direction.

Another stimulus-bill provision requires the Treasury Secretary to =
examine=20
Wall Street and bank bonuses paid last year and early in 2009 to =
determine=20
if they were in the public interest. The government could try to claw =
back=20
any bonuses deemed excessive. The provision would apply to any firm that =
got=20
bailout money.

The bill also requires a nonbinding shareholder vote on executive pay at =

firms receiving bailout funds.

Among the administration's biggest concerns is the stimulus-bill =
provision=20
that allows any firm receiving government money to repay it without =
raising=20
a similar amount of money from private sources. The Treasury now =
requires=20
banks getting cash from the capital-injection program to keep it for =
three=20
years or raise private capital to replace it.

Some banks, such as Goldman Sachs Group Inc., have said they want to =
repay=20
the U.S. as soon as possible but haven't raised private funds to do so. =
The=20
legislation removes that obstacle. But a congressional staffer said=20
repayment would be done in consultation with a bank's primary regulator, =

which has authority to order a bank to raise more funds if its capital=20
cushion is too low.

Lobbyists and executives at big banks have been discussing the pay=20
restrictions with Sen. Dodd's office and Treasury officials, one senior =
bank=20
executive said. The executive said banks are confident the provision's=20
details can be tweaked during the Treasury's rule-making process. Banks' =

hope, the executive said, is to modify the provision's language so that =
it=20
applies only to members of companies' management committees or =
comparable=20
decision makers.

Meanwhile, executive payments authorized by Merrill Lynch & Co. and its=20
owner, Bank of America, are the subject of a new investigation, from =
North=20
Carolina Attorney General Roy Cooper. He has asked for information about =

payouts authorized by Merrill before Bank of America bought it and =
separate=20
bonuses authorized by Mr. Lewis and his board last month.

New York Attorney General Andrew Cuomo, who is also investigating the=20
matter, alleged this week that Merrill "secretly" moved up the date for=20
awarding bonuses and said the total was $3.6 billion, including $121 =
million=20
to four top executives. Mr. Cuomo alleged Bank of America had "apparent=20
complicity" in the awards. Bank of America has said it urged that =
Merrill's=20
2008 bonuses to be reduced but that this was Merrill's decision.

The North Carolina AG sent Bank of America's board a letter this week =
after=20
Mr. Lewis told the House Financial Services Committee the bank would =
start=20
awarding bonuses Feb. 15. Mr. Cooper has asked the bank to disclose the=20
totals and also details of Merrill bonuses awarded in December.

Bank of America said it is cooperating with the inquiry and that bonuses =
for=20
2008 were reduced by an average of more than 60%, with Mr. Lewis and =
those=20
who report directly to him receiving none.

-David Enrich and Dan Fitzpatrick contributed to this article.
Write to Deborah Solomon at deborah.solomon at wsj.com and Mark Maremont at =

mark.maremont at wsj.com=20