Compensation questions

Although the $700 billion bailout package passed by Congress includes provisions aimed at holding down executive compensation at companies getting federal help, the early reviews suggest that it will have little real impact.

Under Treasury Department rules, the banks that are getting capital injections from the government can take tax deductions on only the first $500,000 of an executive's pay, down from the standard Internal Revenue Service limit of $1 million.

The new rules even apply to stock options and grants. But critics say that the companies covered by the new restrictions will simply pay more in taxes rather than pay less to executives. Indeed, none of the companies that has signed on for federal bailout money has announced plans to slash salaries and bonuses, or to substantially overhaul their executive compensation schemes.

The German government has taken a more stringent approach with banks participating in its bailout program. Companies there would have to cap salaries for top executives at 500,000 Euros, or roughly $635,000. The German plan also would prohibit them from receiving bonuses until the debt to the government is repaid.

Other countries providing assistance to their struggling financial institutions also are imposing salary caps or restrictions.

Over the next few days, BailoutSleuth will highlight the pay packages of top executives at the nine U.S. banks that have agreed to receive federal aid by selling preferred stock to the Treasury Department.

We welcome reader input on the subject, as well as tips on specific situations that deserve more scrutiny. Please send your comments to Chris Carey at chris@sharesleuth.com.