U.S. Rep. Jim Himes, D-4th, is leading an effort in Congress to adopt legislation that would prevent executives at bailed-out companies from receiving excessive pay in bonuses or salaries.
Himes, along with Florida Congressman Alan Grayson, has sponsored a bill known as the Grayson-Himes Pay for Performance Act of 2009, which would prohibit certain compensation payments by all companies — including AIG — that have received and are still holding onto bailout money.
Specifically, the bill prohibits any compensation payments that are “unreasonable or excessive,” restricts all non-performance based bonuses, and effectively repeals a controversial provision in the American Recovery and Reinvestment Act, which prevents the termination of bonuses that are due under employment contracts entered on or before Feb. 11, 2009.
“This bill is a smarter step in satisfying the need to be respectful to taxpayer money,” Himes said in a recent interview. “If you’re a company that is holding onto TARP money, than your compensation plans must pass the tests of reasonableness.”
Himes said the goal of the bill, which has already passed out of the Financial Services Committee, is to ensure accountability for taxpayers and shareholders and encourage good performance while keeping employee pay a matter of measurable job performance rather than public opinion.
The bill directs Treasury Secretary Timothy Geithner to establish standards to determine whether a bonus is “unreasonable” or “excessive” and the restriction will remain in place until a company repays all the federal money it received.
The proposal stems from the populist anger that erupted in Connecticut and around the country when reports surfaced that AIG employees at the company’s Wilton-based financial products unit would receive hundreds of millions of dollars in retention bonuses.
AIG executives claimed that Connecticut’s labor laws legally required it to payout the bonuses, which sparked the furor of Attorney General Richard Blumenthal and the Democratic co-chairs of the state legislature’s banks committee.
Blumenthal has been investigating the bonus payouts ever since, which he said could be as much as $451 million. Blumenthal has also asked Federal Reserve Chairman Ben Bernanke not to pay out any remaining bonuses.
In another response to that public outrage the U.S. House of Representatives voted last month to tax away 90 percent of any bonuses agreed to in 2008 and paid this year by AIG or other recipients of bailout money.
But that measure stalled in the Senate and President Obama has cooled his support for it.
Himes, who used to work at Goldman Sachs, said he too was uncomfortable with that legislative proposal.
“It was a hard one for me,” Himes said. “I thought it was a hastily drafted piece of legislation with unintended consequences. It was a sign that Congress was aware of the anger that the American people were feeling, but I thought the proposal was an in artful way to make that statement.”
Himes’ bill would not force employees of AIG to give back money already paid to them. But it would empower the government to stop future payouts by financial institutions even if employees have been promised the money.
It would also exempt institutions that agree to participate in a government-sponsored program aimed at buying up $1 trillion of bad debt, or “toxic assets,” sitting on the books of major banks.
Himes also said that if companies don’t want to abide by the rules under his bill proposal, then they should be able to repay their TARP money back to the government.
“As long as a bank is healthy they should be able to return the money,” Himes said.
Republicans are expressing opposition to the bill because they said it was too vague, but Democrats said it was necessary to protect taxpayer dollars.
“It’s hard to say if it will have support,” Himes said, noting that two Republicans did vote for it in committee. “I think it’s hard to disagree with the notion, but I also don’t think this will be the last word on the issue.”
Greg Bordonaro is a Hartford Business Journal staff writer.
