House Gives Regulators Incentive Pay Role; Senate Prospects Dim

The U.S. House gave regulators the power to ban Wall Street incentive pay that encourages excessive risk-taking after banks bailed out by taxpayers paid billions of dollars in bonuses.

The legislation, passed 237-185 yesterday, authorizes banking agencies and the Securities and Exchange Commission to prohibit compensation practices that threaten the sustainability of financial companies and “could have serious adverse effects on economic conditions.” The bill must pass the Senate, where lawmakers oppose aspects of the measure, and be signed by President Barack Obama to become law.

The bill targets “bonuses that pay off if the gamble or the risk pays off but don’t lose you anything if it doesn’t,” said House Financial Services Committee Chairman Barney Frank, author of the legislation. “There is a wide consensus that this incentivizes excessive risk.”

Outrage over Wall Street pay was reignited after New York Attorney General Andrew Cuomo reported July 30 that nine banks getting U.S. aid paid $32.6 billion in bonuses last year. Cuomo’s report showed the nine companies paid 4,793 employees bonuses that exceeded $1 million last year.

In addition to targeting incentive pay, the House measure requires all public companies to give shareholders a non-binding vote on top managers’ compensation.

Representative Spencer Bachus, an Alabama Republican, criticized the measure and questioned whether it makes sense to give more power to regulators that “failed to prevent the worst financial calamity since the Great Depression.”

“Under the guise of empowering shareholders it is in fact the government that is empowered,” he said.

Senate, Obama

The legislation got a cool reception from senators and the Obama administration. White House press secretary Robert Gibbs, told reporters this week the administration is concerned the measure may give regulators too much authority over incentive pay. Obama has endorsed giving shareholders a vote on compensation.

“We are not in this case taking orders from the Obama administration,” said Frank, a Massachusetts Democrat. link....