Pay to Play

The Pay For Performance Act passed in the House of Representatives. The bill only covers companies that have received TARP money. Fox News Neil Cavuto went nuts trying to get Alan Grayson to define how much a bonus would be unjust. Cavato asked if a secretary could be denied a bonus. Grayson doesn't say what amount would be deemed inappropriate. The bill states any employee is subject to the Pay For Performance Act.

‘(1) PROHIBITION- No financial institution that has received or receives a direct capital investment under the Troubled Assets Relief Program under this title, or with respect to the Federal National Mortgage Association, the Federal Home Loan Montrtgage Corporation, or a Federal home loan bank, under the amendments made by section 1117 of the Housing and Economic Recovery Act of 2008, may, while that capital investment remains outstanding, make a compensation payment, other than a longevity bonus or a payment in the form of restricted stock, to any executive or employee under any pre-existing compensation arrangement, or enter into a new compensation payment arrangement, if such compensation payment or compensation payment arrangement--

Sec. of Treasury Tim Geithner will decide what bonuses are excessive.

‘(B) PERFORMANCE-BASED STANDARDS- Standards for performance-based measures that a financial institution must apply when determining whether it may provide a bonus or retention payment under paragraph (1)(B). Such performance measures shall include--

‘(i) the stability of the financial institution and its ability to repay or begin repaying the United States for any capital investment received under this title;

‘(ii) the performance of the individual executive or employee to whom the payment relates;

‘(iii) adherence by executives and employees to appropriate risk management requirements; and

‘(iv) other standards which provide greater accountability to shareholders and taxpayers.

Geithner admitted the Treasury Department had conversations with Chris Dodd's about the bonus loophole. Dodd said the Treasury Department wanted a bonus loophole for TARP recipient. Geithner claims ignorance to these conversations.

"I would have preferred that we kept my language, as it left the Senate unanimously," Dodd added. "In fact there were objections when I wrote the language even before it left the Senate. ... The administration expressed reservations with the amendment. They came to us and asked for modifications in the amendment. The alternative was, of course, losing the amendment entirely, which was a possibility. I didn't want to see that happen. I suspect we would be having a conversation tonight why we didn't include some language in here to deal with bonuses, golden parachutes and the like. ... I don't believe anyone had any idea, I certainly didn't, that a month and a half later from February we would be talking about AIG and the bonuses they are receiving for their retentions, these $165 million. So that was never a part of the consideration."

Grayson's bill is too vague and counts on Geithner to due diligent oversight over bonuses. Geithner already had one chance to curb excessive bonuses and passed. This bill is so bad that I find myself agreeing with Cavuto.

Side note: I doubt much arm twisting was needed to have Dodd write the loophole.

Politically, Democrats can say they went after greedy companies and label Republicans out of touch. From a policy perspective: the bill won't make much of a difference.