By J. Taylor Rushing - 10/22/09 05:01 PM EDT
Sen. Charles Schumer (D-N.Y.), one of Wall Street’s most consistent
supporters, is nudging the Obama administration to go further in its
effort to restrict executive pay and reform financial firms that
received public bailout funds.
In a letter Thursday to the administration’s “pay czar,” Kenneth Feinberg, Schumer endorses Feinberg’s announcement Thursday that salaries to 175 executives at seven companies would be cut by 90 percent over their 2008 levels.
A longtime protector of the financial industry, Schumer told The Hill the economic meltdown changed the rules for Wall Street.
“We’re in a different world here, and if you get bailout money the same practices can no longer continue to exist, period,” he said.
Schumer’s letter reads, “While reigning [sic] in compensation practices at these firms is certainly necessary to ensure that taxpayer money is well spent and not squandered on lavish pay, executive compensation is just the tip of the iceberg when it comes to the practices that so recently put our entire financial system at risk.
“These companies are the poster children for the total breakdown in corporate governance and lack of effective board oversight that contributed to the recent crisis, and I believe these reforms are critical if the government is serious about turning these companies around, returning them to private sector ownership and ensuring they participate in the markets as responsible corporate citizens.”
Specifically, Schumer points to his “Shareholders' Bill of Rights” legislation that he introduced in May with Sen. Maria Cantwell (D-Wash.). The bill requires: companies to allow shareholders a greater role in nominations to a company’s board of directors; board members to be annually reelected; board members to receive at least 50 percent of a vote in uncontested elections, and public companies to create a separate “risk committee" with an independent board.
Feinberg plans to cap a months-long review process by announcing the cuts — along with new restrictions on corporate luxuries such as use of private jets, chauffers and even country club membership — at five financial firms and two auto companies. The seven companies are AIG, Bank of America, Chrysler, Chrysler Financial, Citigroup, General Motors and GMAC.
Schumer and Feinberg are both Brooklyn natives and longtime friends. A former chief of staff to the late Sen. Edward Kennedy (D-Mass.), Feinberg chaired the Sept. 11 Victims Compensation Fund and often worked with Schumer.
Senate reaction to Feinberg’s plan mostly broke along party lines, with Democrats supporting the idea and Republicans arguing against government intervention in the private market. There was one notable exception: Sen. John McCain (R-Ariz.), Obama’s 2008 rival for the presidency, said he supported the administration.
“I have no problem with greed being curtailed,” McCain said.
Most Republicans said just the opposite.
“I have a visceral reaction against so much government involvement in free enterprise,” said Senate Republican Conference Chairman Lamar Alexander (Tenn.)
Some Republicans are more ambivalent.
“There’s no question we’re way too involved in these companies, but on the other hand these companies are on the taxpayer dole,” said Sen. Bob Corker (Tenn.). “Hopefully the outcome of all this is that companies are very wary about becoming involved with the federal government.”
In March, Schumer led the charge to force AIG to return most of $165 million in taxpayer money that the firm spent on executive bonuses. In a floor speech and in comments to reporters, Schumer threatened to push through a law to tax the bonuses at up to 100 percent.
“To those of you getting these bonuses, be forewarned: you will not keep them,” Schumer said on the Senate floor.
Two days later, the House voted 328-93 for a 90 percent tax on bonuses awarded by corporations receiving more than $5 billion in bailout funds, aimed at executives who make $250,000 or more in total household income and bonuses paid or scheduled to be paid after Dec. 31, 2008. The Senate version of the bill levied a 70 percent tax.
The controversy dissipated within days, as 15 of the 20 highest-paid AIG executives agreed to return the bonuses.