H.R. 1664: To amend the executive compensation provisions of the Emergency Economic Stabilization Act of 2008 to prohibit unreasonable and excessive compensation and compensation not based on performance standards

H.R. 1664

To amend the executive compensation provisions of the Emergency Economic Stabilization Act of 2008 to prohibit unreasonable and excessive compensation and compensation not based on performance standards

Date
April 1, 2009 (111th Congress, 1st Session)

Staff Contact
Communications

Floor Situation

H.R. 1664 is expected to be considered on the House floor on Wednesday, April 1, 2009, under a structured rule, allowing for one motion to recommit, with or without instructions. This legislation was introduced by Alan Grayson (D-FL) on March 23, 2009, and referred to the Committee on Financial Services, which reported the bill on March 26, 2009, by a vote of 38-22.

Bill Summary

H.R. 1664 would impose compensation restrictions on employees of any entity that has an outstanding direct capital investment from the Troubled Asset Relief Program (TARP), as well as employees of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. The bill would prohibit any qualifying institution from making a compensation payment to an employee if it provides "unreasonable or excessive" compensation or includes a bonus that is not performance based. The bill would require the Secretary of Treasury to establish the definition of "unreasonable and excessive" compensation within 30 days of enactment and, thus, determine the level of compensation an employee of a TARP recipient could earn.

H.R. 1664 would also require the Secretary to establish standards for performance-based compensation. An institution with outstanding TARP funds would be required to apply these standards before it paid a bonus to any employee. The bill would require any financial institution that has received TARP funds to issue a report within 90 days of enactment (and annually thereafter) stating how many employees received total compensation above $500,000.

Finally, the bill would effectively repeal an amendment to the Emergency Economic Stabilization Act (EESA) added by Sen. Chris Dodd (D-CT) during the conference committee on the so-called "stimulus" bill, H.R. 1. The amendment stated that provisions limiting bonus compensation payments would not apply to "any bonus payment required to be paid pursuant to a written employment contract executed on or before February 11, 2009." H.R. 1664 would state that the exception for bonus contracted before February 11, 2009, would not apply while TARP capital to the institution is still outstanding.

Background

On October 3, 2008, the House passed H.R. 1424, the Emergency Economic Stabilization Act, which established the $700 billion Troubled Asset Relief Program (TARP) to authorize the government to purchase toxic assets from financial instaurations.  According to the Government Accountability Office (GAO), the Department of Treasury has allocated some $590.4 billion of TARP funds to more than 530 companies through 12 different programs.  H.R. 1664 would require the Secretary of Treasury to prohibit "unreasonable or excessive" levels of compensation for institutions that have received TARP funds and have yet to pay the funds back.

The underlying legislation was introduced on March 23, 2009, one week after American International Group (AIG) announced that it had paid $165 million in contractually obligated retention bonuses-some as large as $6 million-to 73 AIG Financial Products Group employees even though the company is being kept alive with $173 billion in taxpayer funds.  The announcement sparked public outrage regarding the use of taxpayer assistance and led to the consideration of this and other legislation.

As an initial reaction to the AIG bonuses, the House passed H.R. 1586, a bill to impose an additional 90% tax on bonuses received by employees of TARP recipients that owed the government more than $5 billion, by a vote of 328-93.  The 90% tax increase would have applied to only the portion of a bonus that, in combination with other income, increases an employee's adjusted gross income to a level above $250,000 ($125,000 for married couples filing individually) in the taxable year when the bonus was received.  Therefore, employees with adjusted gross incomes of less than $250,000 (including bonuses) would not be impacted.  H.R. 1586 has yet to be considered by the Senate.

Unlike the 90% tax, the underlying legislation would require the Secretary to assess compensation restrictions on all employees (not just those making more than $250,000) and would affect all TARP recipients (not just those that have received more than $5 billion).  H.R. 1664, the "Pay for Performance Act," would also give sole responsibility for determining the restrictions on compensation to Treasury Secretary Timothy Geithner, thus removing any Congressional control over the limits on pay.

Following debate on H.R. 1, the so-called "stimulus" bill, the Democrat conference committee stripped a Senate-passed provision which would have prevented the $165 million in AIG bonuses.  The conference committee removed an amendment sponsored by Senators Olympia Snowe (R-ME) and Ron Wyden (D-OR) that would have forced any TARP recipient to repay any bonus paid in excess of $100,000, or face a 35% excise tax on any TARP funds that were not immediately paid back to the Treasury.   In fact, the $165 million in AIG bonuses were made possible by a provision to the "stimulus" added by Sen. Chris Dodd (D-CT), which stated that provisions limiting compensation payments would not apply to "any bonus payment required to be paid pursuant to a written employment contract executed on or before February 11, 2009."

In the dissenting views that accompany House Report 111-064, Republicans on the Financial Services Committee point out that the Minority has been strongly opposed to excessive bonuses and compensation for executives at companies which have received taxpayer bailouts-especially at institutions such as AIG, which has received or been pledged a staggering $173 billion from the taxpayers.  The dissenting views also note that it was the addition of the Dodd amendment in the final hours before the vote on H.R. 1 that allowed the AIG bonuses to occur.  According to the dissenting views, "H.R. 1664 is an effort to cover the Democratic Majority's tracks, and ‘change the subject' from the administration's failure to exercise adequate oversight of the taxpayer dollars expended to prop up AIG."

Some Members may be concerned that H.R. 1664 further increases the government's role in the everyday decisions of TARP recipients rather than moving the federal government toward an exit strategy from the cycle of bailouts and private-sector entanglements.  In addition, Members have raised concerns that the legislation is too broadly applied to small TARP recipients and abdicates too much Congressional responsibility to the Secretary of Treasury.  In light of these concerns, Ranking Member Bachus (R-AL) and other Members of the Financial Services Committee are opposed to the legislation.

Cost

According to CBO, H.R. 1664 would have no significant impact on the federal budget. However, H.R. 1664 would impose a private sector mandate by restricting the compensation of employees of institutions that have received TARP funds. Because the cost of the mandate would be determined by the Secretary of Treasury at a later date, CBO cannot determine if the private sector mandate would exceed the threshold established in the Unfunded Mandate Reform Act for private-sector mandates ($139 million in 2009, adjusted annually for inflation).