WASHINGTON — Talking tough but stepping gently, the Obama administration rejected direct intervention in corporate pay decisions Wednesday even as officials argued that excessive compensation in the private sector contributed to the nation's financial crisis.
"We do not believe it's appropriate for the government to set caps in compensation," Treasury Secretary Timothy Geithner said.
Instead, the administration plans to seek legislation that would try to tame compensation through shareholder pressure and less management influence on pay decisions.
At the same time, the administration drew a sharp distinction between the overall corporate world and those institutions that have tapped the government's $700 billion Troubled Asset Relief Program.
The administration is ready to issue new regulations governing pay at companies that receive TARP assistance, with the toughest restrictions aimed at recipients of "exceptional assistance," such as Citigroup, Bank of America, General Motors and American International Group. The regulations, which follow legislation already passed by Congress, would limit top executives at publicly assisted firms to bonuses no greater than one-third of their annual salaries.
The administration has named Kenneth Feinberg, a lawyer who oversaw payments to families of victims of the Sept. 11, 2001, terrorist attacks, as a "special master" with power to reject pay plans he deems excessive at companies with the biggest injections of public money. Feinberg also would have authority to review compensation for the top 100 salaried employees at those firms.
Criticism of executive pay accelerated earlier this year amid disclosures that AIG, the insurance conglomerate, had paid bonuses of $165 million even as it accepted billions from the government. AIG is among the companies whose pay schemes the government will now oversee.
But outside in the broader private sector, the administration chose to use public pressure and the potential for embarrassment, rather than direct pay restrictions.
The administration appeared to be heeding the concerns of the financial sector.
"Our concern is the government should not set specific dollar amounts and should stick to principles and guidelines, which I believe they will," said Scott Talbott, the senior lobbyist for the Financial Services Roundtable, an industry group.
Advocates of stronger limits were disappointed. Sarah Anderson, an expert on executive compensation at the liberal Institute for Policy Studies, said Obama could have stopped short of pay caps and still used the tax code to regulate executive compensation.
Officials from the Treasury Department, Federal Reserve and Securities and Exchange Commission are expected to testify today about executive compensation before the House Financial Services Committee.