House Passes New, Weaker Bill Curbing Bonuses

WASHINGTON -- The House of Representatives took a second stab at curbing executive bonuses in the wake of public furor over payouts to American International Group Inc., this time passing a bill less severe than one passed quickly after the payments were disclosed two weeks ago.

But the prospects of the new measure becoming law remain uncertain. Enthusiasm for bonus curbs is low in the Senate, which effectively quashed the last proposal.

[Harry Reid]

Harry Reid

The House bill that passed Wednesday wouldn't allow firms receiving funds from the Treasury Department's $700 billion Troubled Asset Relief Program, or TARP, to make payments to executives as part of new or existing compensation packages that are deemed "unreasonable or excessive." The House voted, 247-171, to approve the legislation. One member voted "present."

The bill follows public outrage after AIG paid $165 million in bonuses to top employees and executives after receiving public funds through a $173 billion federal bailout.

"We will not sit idly by as money is being taken from the American people instead of being used to restore the confidence in this nation, as it was intended," said Rep. Michael Arcuri (D., N.Y.).

The bill would go a step further than executive compensation limits approved in the $787 billion economic-stimulus package by allowing compensation packages approved before enactment of the stimulus to be curtailed. Compensation limits in the bill would last until firms repay rescue funds received from the federal government.

The measure requires that bonuses and other "supplemental payments" get awarded based on performance standards set by federal regulators. The Treasury Department would develop the standards with the interagency Federal Financial Institutions Examination Council and the TARP Congressional Oversight Panel.

Approval of the bill comes after the House on March 19 overwhelmingly passed a bill that would put a 90% tax on bonuses for people who make $250,000 or more at firms receiving TARP funds. That measure, which was approved in the House Ways and Means Committee, gained little traction in the Senate and drew concerns from the White House.

The bill approved Wednesday gives the Treasury far greater discretion than the previous House bill in deciding which bonuses are excessive, while avoiding questions about the fairness of the heavy tax penalties in the previous bill.

Senate interest in clamping down on Wall Street pay has waned in the wake of reports that many AIG executives have given back the disputed bonuses and amid concern that efforts to claw back the payments aren't constitutional.

Senate Democratic leaders aren't closing the door completely, however. A spokesman for Senate Majority Leader Harry Reid of Nevada said the "Senate Banking Committee will study the House's proposal on executive pay," and pledged that Sen. Reid will also look at the "idea and others over the next few weeks."

Printed in The Wall Street Journal, page A3

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