Treasury Ties Bailout Funds to Limits on Executive Pay

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In October 2008, Treasury announced that it would make capital investments in financial institutions in order to stabilize the financial system. The Capital Purchase Program included limited restrictions on executive compensation for participating financial institutions.1 On February 4, 2009, Treasury announced a new set of executive compensation guidelines applicable to companies receiving government funds.2 This announcement comes on the heels of an increasing number of press reports and public outcries over excesses at bailed out institutions. A lavish retreat for AIG employees angered politicians and the public alike. According to Congressman Mark Souder, the AIG retreat represented “unbridled greed.”3 In late fall, in response to growing pressure from politicians and the public, executives at many of the world’s largest financial institutions announced they would forego their 2008 bonuses.4 Finally, in early 2009, amidst controversy over planned purchases of corporate jets, stadium sponsorships, lavish office renovations and employee conferences in “sinful” destinations like Las Vegas, the government took action. Realizing that the existing compensation limitations were inadequate to quell public upset, required too few limitations on the use of public funds and, according to President Obama, a growing sense that “executives [are] being rewarded for failure,” Treasury announced extensive prohibitions on executive compensation.

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