President Obama's plan to rein in the exorbitant pay packages of financial executives whose companies accept taxpayer bailout money sends an appropriate message. If these banks and financial firms want the public's help, they need to spend the public's money wisely and bring executive compensation down to earth.
The action is long overdue. Congress tried to impose similar limits when it first approved the $700 billion in bailout money for the Troubled Asset Relief Program, but the Bush administration stymied the effort. Now, with fresh reports about the way banking executives were lavished with bonuses and perks even as their institutions sought billions in public money to stay solvent, the proposed rules are a political necessity.
The rules would limit top executive salaries to $500,000 except for stock that cannot be sold until the government has been repaid or the institution is in solid financial shape. There would also be limits on golden parachutes. The top 10 executives could not be rewarded with more than one year's pay as they walk out the door.
The rules are not perfect. There are loopholes. First, the rules would only apply prospectively, and none of the more than 350 financial institutions that have already received TARP funds would be required to comply. Also, the proposals would not apply to lower-level executives, such as stock traders or investment bankers, who could still make millions of dollars in outsized salaries and bonuses. And companies that don't seek large sums of bailout money could waive the pay cap, if shareholders approve the compensation package in a nonbinding vote.
But the rules are more than an empty gesture. They are an attempt to change a culture of greed, privilege and entitlement that has permeated the financial sector. The nation's economic troubles in part stem from Wall Street and banking executives who made risky bets in order to reap huge fortunes for themselves. Now those bets have gone bad, pulling down the economy as a whole. But despite poor performance, top executives have continued to enjoy salaries, bonuses and benefits that the average American worker can hardly fathom.
There have been few objections to the plan, but those who do complain say that caps on compensation will make it hard to attract the best talent. Somehow that cry doesn't have the same resonance after all those highly paid Wall Street geniuses have made such a mess of things.