Washington, D.C.— Senate Majority Leader Harry Reid and Speaker Nancy Pelosi today sent a letter to Treasury Secretary Henry Paulson expressing concerns about the level of compensation that top executives will continue to receive at financial institutions benefiting from taxpayer assistance under the Emergency Economic Stabilization Act. Senator Reid and Speaker Pelosi called on the Secretary to consider implementing stronger restrictions on the use of “golden parachutes” by financial institutions that receive taxpayer-funded capital infusions.
Below is the text of the letter:
October 29, 2008
Secretary Henry Paulson
Department of the Treasury
1500 Pennsylvania Ave., NW
Washington, D.C. 20220
Dear Secretary Paulson:
We are writing to express concern about the level of compensation being provided to top executives at financial institutions receiving substantial taxpayer subsidies under the Emergency Economic Stabilization Act of 2008 (EESA).
As you know, the EESA includes a variety of specific rules designed to protect taxpayers from having their taxes used to support excessive compensation at subsidized institutions. The Act also gives the Treasury Secretary broad discretion to set the terms and conditions of transactions under the Act.
We were pleased that you decided to use your discretion to establish tougher compensation standards than were required by the terms of the new law for “systemically significant failing institutions.” For example, we understand that you will require such institutions to agree not to deduct compensation of covered executives to the extent that it exceeds $500,000. We commend you for this.
At the same time, we continue to hear from constituents who are outraged at the level of compensation being provided to executives at institutions participating in the new Capital Purchase Program (CPP). News reports have suggested that six major financial institutions participating in the program have plans to pay their executives billions of dollars. Such reports understandably infuriate many Americans, who resent having their taxpayer dollars used to support such institutions, especially in light of the serious and growing economic pressures confronting working Americans.
Given the level of public outrage over these compensation schemes and your demonstrated willingness to go beyond the letter of the law with respect to “systemically significant failing institutions,” we hope you will seriously consider strengthening the restrictions on executive compensation that apply to institutions participating in the CPP. We would urge you, in particular, to consider the possibility of further restrictions on the use of “golden parachutes” at such institutions.
While we know that you have proposed an interim final rule that adopts some limits on “golden parachutes” at CPP institutions, these restrictions appear to be substantially weaker than those applicable to “systemically significant failing institutions.” For example, under the interim final rule, we understand that Treasury could not block “golden parachutes” for top executives at CPP institutions unless they equal or exceed three times their base pay, whereas you proposed no such restriction for similar compensation packages at “systemically significant failing institutions.”
While we understand that there may be legitimate reasons to distinguish between these two programs, we also would note that your interim final rule for the CPP still would allow very large compensation packages for many departing executives at institutions that will be receiving billions of taxpayer dollars. We are concerned that such lavish severance packages could weaken public support for your critical efforts to stabilize the economy.
Thank you for your ongoing diligence in addressing the economic crisis, as well as for your cooperative working relationship.
NANCY PELOSI HARRY REID
Speaker of the House Senate Majority Leader