By U.S. Sen. Olympia J. Snowe(R-Maine)
Upon hearing last week that American International Group (AIG) doled out $165 million in bonuses after receiving a $170 billion bailout from the federal government, I felt, like most Americans, personally offended and outraged. How could Wall Street executives commit this shameful violation of the public’s trust only months after willingly accepting taxpayer funds through the Troubled Asset Relief Program (TARP)? How could Congress and the Obama Administration overlook these planned bonuses, especially after Wall Street bonuses totaled $18.4 billion in 2008? How did this happen? And more importantly, how can we ensure that these audacious and greedy offenses are the last surprise of Wall Street? The truth is, some of us in the U.S. Senate did see it coming and tried to prevent it. I remember the morning in January when I opened the Wall Street Journal to find that Merrill Lynch paid bonuses of $1 million or more apiece to nearly 700 employees and more than $121 million to four top executives! I was baffled as to why these employees received such exorbitant compensation in the same year that they brought the global economy on the brink of collapse. Certainly the flawed framework of the first financial rescue package enacted by Congress left open the escape hatch of golden parachutes for top executives on Wall Street – the same individuals whose careless mistakes hurt the financial system and forced taxpayers to foot the bill in the first place.
I decided that Congress had to do something. Senator Ron Wyden of Oregon and I worked quickly and diligently to craft a provision that would force financial institutions that used “federal bailout” funds to pay employees bonuses in excess of $100,000 will be required to compensate taxpayers. Specifically, the proposal would require banks that received funds from the Troubled Asset Relief Program (TARP) to either repay the cash portion of any bonus paid in excess of $100,000 early – within 120 days of the amendment’s enactment – or face an excise tax of 35% on what is not immediately repaid to the treasury. We were pleased when the provision was accepted by voice vote as an amendment to the American Recovery and Reinvestment Act of 2009.
The stimulus debate presented an opportunity to enact firm restrictions on the ability of financial institutions receiving TARP funds to provide executive compensation. Yet in a mysterious turn of events, the amendment was inexplicably stripped out during House-Senate conference negotiations. Had the initiative been enacted into law, the Snowe-Wyden amendment would have forced AIG to either return the TARP money or pay out the bonuses and incur a 35 percent tax – equating to roughly $58 million.
Waking up to the news of the outrageous AIG bonuses was especially frustrating after the failure of the House-Senate conference to accept our crucial amendment. But Senator Wyden and I are not ones to be easily deterred and worked tirelessly with the Leaders of the Senate Finance Committee to craft new legislation modeled after the Wyden-Snowe amendment. Last Friday we introduced bipartisan legislation, the Compensation Fairness Act of 2009, to reflect the public’s rightful outrage and ensure that AIG’s gluttonous bonuses are the last corporate abuse of taxpayer rescue dollars. This bipartisan compromise, which reflects my original proposal, ensures that money paid out under the TARP program will not be funneled into obscene bonuses.
For companies that received TARP funds, the new legislation would impose a 35 percent excise tax on both employers and employees, on retention bonuses and other bonuses. In addition, recipients of bonuses would be liable for income and payroll taxes for any amount received. The proposal would also put a cap on the amount of income employees of these companies are allowed to defer tax free. Small banks as defined by the tax code and entities that received less than $100 million in TARP funds would be exempt from the legislation. Overall, this bipartisan compromise ensures the halt of future abuses of public dollars and insists on strong and effective taxpayer protections. In order to restore confidence in our financial institutions, we must end the arrogant culture that has ignored the hardship of Main Street and imposed further abuse on the American people.
Currently the legislation is being slowed by the Obama Administration and the Congressional leadership of both Republicans and Democrats. This is undoubtedly a mistake. The Obama Administration must clarify their approach to executive compensation. If they are not going to accept this legislation and they have decided to abandon this type of approach, then they have an obligation to be proactive and straightforward about what their intentions are with respect to executive compensation. We must satisfy and answer the rightful concerns of the public. Frankly, as millions Americans are losing their jobs, and homes, I don’t want to wake up to news of billions of dollars in Wall Street bonuses ever again.
