The House of Representatives on Wednesday approved legislation to curb "excessive" employee pay at financial firms that receive government bailout funds, a measure that could supplant an earlier effort to heavily tax executive bonuses.
The bill, which passed on a 247-171 vote, would give the U.S. Treasury broad powers to prohibit "unreasonable and excessive" compensation and bonuses that are not based on performance standards.
The new curbs would apply to all employees, not just executives, of firms that have received capital investments from the Treasury’s $700 billion financial rescue fund. The standards also would cover compensation paid to an employee after leaving a firm or before joining it.
The "Pay for Performance Act of 2009" is among a number of efforts by Congress to claw back bonuses and curb pay in the wake of public anger over recent executive bonuses at insurer American International Group, which has received a bailout worth up to $180 billion.
"The Pay for Performance Act is based on two simple concepts. One, no one has the right to get rich off taxpayer money, and two, no one should get rich off abject failure," said one of the bill’s authors, Representative Alan Grayson, a Florida Democrat who co-authored the measure. "We should not pay an arsonist to put out his own fire, and we should not be paying an executive to ruin his own bank."
The measure is largely expected to sideline a bill previously passed by the House of Representatives that aimed to impose a 90 percent tax on bonuses for certain executives at companies that receive taxpayer bailouts. That measure appeared to be losing momentum in the Senate.
The new and less aggressive approach would authorize the Treasury to provide the guidance on what is unreasonable or excessive, and what constitutes performance-based pay. Firms that pay back their government funds or set up a repayment schedule with the Treasury will no longer have to comply with the limits.
Also exempted are community banks that receive less than $250 million in government funds.
Both the bill passed on Wednesday and the bonus tax bill approved two weeks ago are part of a legislative backlash sparked by AIG’s March 15 payment of $165 million in retention bonuses to employees of its AIG Financial Products unit, which made bad bets on credit default swaps and complex mortgage-backed securities.
The retention payments were decided last year before the company’s government bailout, but the Obama administration determined that it was legally bound to make the payments, vowing to recoup the cash for taxpayers.
Earlier on Wednesday, the House rejected a third bill that would have let the Department of Justice seek repayment of bonuses paid to TARP recipient firms that have received more than $10 billion in federal aid, and limit executive pay to 10 times average non-management wages. This proposal, however, raised lawmaker concerns about its constitutionality.
Some financial firms have said the prospect of compensation limits have made them reluctant to participate in the Treasury program, which could diminish its power to cleanse toxic assets from banks’ books and jump-start lending.
Although 85 Republicans voted in favor of the bonus tax, only 10 Republicans voted for the pay-for-performance measure on Wednesday, and many spoke out against the bill as taking a step too far for government control of private business.
"There’s no question we need more performance-based pay decisions, but the government deciding and judging the performance of employees in private companies, the secretary of the Treasury deciding whether an employee is performing? I think not," said Representative Spencer Bachus, an Alabama Republican. "The answer is not a dramatic expansion of government control."
The bill will now move to the Senate, where Democrats have a much thinner majority, and efforts to impose controls and restrictions on companies receiving government aid have been more moderate.