Banks: We need clarity on execs' pay
Survey of bailout recipients shows banks are trying to adapt to executive compensation rules in flux, but some say restrictions are a tough burden.
NEW YORK (CNNMoney.com) -- Banks that received bailout funds said they are trying to comply with executive pay curbs imposed by the Treasury Department, but the firms are worried about changing rules and an inability to keep top talent, according to a report relesed Wednesday by a TARP overseer.
Neil Barofsky, special inspector general for the Treasury Department's $700 billion bailout, conducted the survey of 364 banks in mid-February. The banks responded to questions about how they are adopting various compensation restrictions.
Barofsky conceded that the survey was mailed out during a particularly confusing time in the executive compensation saga, as the Recovery Act tightened some of the compensation limits initially set up by the Troubled Asset Relief Program. Still, the report underscores the continuing tension between banks' concerns about the pay restrictions and the uproar over bonuses by the public and lawmakers.
When TARP was enacted in October 2008, the bill included several executive compensation curbs. Among them were limits on excessive risk taking and tax deductions for pay over $500,000 for the five highest paid employees, prohibitions on golden parachutes and a requirement that bonuses be paid back in the event of fraud.
February's stimulus bill required Treasury to strengthen many of those provisions, and Treasury implemented its new rules in June. The Obama administration also gave its pay czar Kenneth Feinberg the power to look back at certain payments made as early as February to determine if they were consistent with the new rules set out by the stimulus bill.
According to Barofsky's report, ever-changing rules have made compliance difficult for some banks, which expressed frustration that Treasury was altering the rules after the banks had signed agreements for TARP funds.
Banks also argued that the rules were unprecedented, and many worried that more changes would be enacted in the future, perhaps on a more permanent basis.
A number of firms said they have found it difficult to attract or hold on to top-tier talent as a result of the restrictions. One bank said said it lost "five top executives to other firms as a direct result of compensation restrictions," according to the report.
Some said they were looking to give back their TARP funds due to the competitive disadvantage that the compensation limits put on the company.
Still, many banks said they were taking actions to adapt, including assigning special counsel to help them comply with the new rules.
Barofsky's report made no recommendations, but noted that banks saw a need for more guidance from Treasury to help them implement the new restrictions.
In a response letter, Treasury's TARP point man Herb Allison underscored the fact that the timing of the survey "no doubt heavily influenced the views of the survey respondents." Allison added that Treasury has since consolidated all previous executive compensation rules, "providing greater certainty and clarity for TARP recipients."
Supporters of pay curbs have argued that big bonuses caused some banks to make dangerously risky business decisions rather than focus on the long-term health of their firms. Such bets were believed to contribute to the downfall of Bear Stearns and Lehman Brothers, which brought on the credit crisis in September 2008.
Soaring compensation packages and bonuses have also become easy targets for lawmakers and taxpayers.
Earlier this year, public furor erupted over the $165 million in retention bonuses that AIG (AIG, Fortune 500) paid to employees of its most troubled division, after the government stepped in with the largest taxpayer-supported bailout any company has received.
The Obama administration has proposed broad compensation reform for all financial institutions -- not just those receiving federal support. Those proposals include stricter compensation guidelines, so-called say on pay requirements and the regulation of independent compensation committees at firms. 
