CEO “Golden Parachute”. CEOs and the “Golden Parachute” draft of the government’s controversial $700 billion rescue plan. The plan was released Sunday and it does make it clear that pay packages are capped.
The proposal seeks to rein in compensation at participating companies by limiting their tax deduction on executive salaries exceeding $500,000. It allows officials to recover bonuses that have been paid out based on financial statements that later prove to be inaccurate. And it bans exit-pay packages, or golden parachutes, at those companies.
The provisions may be some of the easier for politicians to agree on. They already appear to have support from some CEOs and taxpayers. A recent USA TODAY/Gallup survey of 1,019 people found that 63% think setting limits on executive compensation at companies that participate in the bailout is very important.
Golden parachutes typically pay ousted CEOs three times annual pay, bonuses and pensions and often include perks lasting well into retirement. They’ve long been a sore point for investors at underperforming companies, where many exiting executives have shared little of their pain.
Parachutes have been particularly gilded at the same financial firms that are now struggling. Merrill Lynch CEO Stanley O’Neal left in 2007 with an exit package valued at $161 million. Washington Mutual CEO Kerry Killinger’s golden parachute is valued at $44 million, while Citigroup CEO Charles Prince left last year with $105 million in compensation, says compensation consultant James Reda.
It’s highly unlikely that lawmakers will try to extend curbs on financial CEO compensation to other industries. “Congress should nudge the free market, not bludgeon it,” Reda says.
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