President Obama has announced that a salary cap of $500,000 will be imposed on executives of banks receiving "extraordinary help". Additional compensation is permissible in the form of shares but ownership in these shares will not pass until the federal aid has been repaid. The President indicated that further reforms are being considered; he stated: "We're going to be taking a look at broader reforms so that executives are compensated for sound risk management, and rewarded for growth measured over years, not just days or weeks."
The President's speech can be watched below and read here. A summary of the recommendations is available here. For comment on the proposals, see this op-ed piece written by Professor Lucian Bebchuk which appeared in the Wall Street Journal. An interesting question is what impact the cap will have on bankers' pay in the UK and elsewhere (a cap was introduced in Germany last year). The current approach in the UK focuses on the structure of remuneration rather than the total amount paid. The FSA has published preliminary guidance on good remuneration and UK Financial Investments Ltd will, according to Government Minister Ian Pearson, "work to ensure management incentivisation based on long-term value maximization, which attracts and retains high quality management and which minimizes the potential for rewarding failure" (HC Hansard, 28 Jan 2009, col 582W).
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