Obama Administration Reportedly Drops Salary Curb Plans

June 10, 2009 (PLANSPONSOR.com) - Companies taking government bailout funds have apparently been spared having to comply with government-imposed salary caps, but may still have to face congressionally imposed curbs on incentives.

The Wall Street Journal reported that the Obama administration has decided to toss out its proposal to cap salaries at firms receiving government bailout money, but will continue plans to advocate significant alterations in the way financial services firms pay employees.Treasury Secretary Timothy Geithner is expected to push all firms — not just those receiving funds from the government’s Troubled Asset Relief Program — to make incentive awards more a matter of long-term corporate performance by awarding restricted stock shares rather than giving the person cash, according to the newspaper.

The administration also will appoint a “pay czar” to monitor the firms receiving the most government aid (see Obama Expected to Appoint Feinberg to Police Executive Pay ). Kenneth Feinberg, who oversaw the government’s efforts to compensate September 11 victims, will act as the government’s watchdog over pay at firms receiving the most government aid. He will have to sign off on compensation practices, with the goal of making sure that firms aren’t offering compensation packages that are exorbitant or encourage risky behavior.

Administration officials feared that making salary caps too onerous might drive talented employees oversees or to hedge funds or private equity firms, which would impact the companies and the government’s stake in them, the Journal said.