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Could bailout's pay caps launch Wall Street trend?

Some see the beginning of the end for huge compensation for financial titans. Others say the limits are too weak to bring real change.

By Ron SchererStaff writer of The Christian Science Monitor / September 30, 2008

In the corner office: Lloyd Blankfein of Goldman Sachs is among the most highly paid CEOs on Wall Street.

cHip East/Reuters

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Lloyd Blankfein, chairman of Goldman Sachs, made $73.7 million last year. James "Jamie" Dimon, chairman of J.P. Morgan Chase, had to make do with $57.2 million, reported Forbes magazine.

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But if either company takes part in the federal government's $700 billion rescue plan for financial firms, Mr. Blankfein and Mr. Diamon may have to be content with $500,000 a year, or their company will have to pay higher taxes.

While it's not likely this will cause either man to skimp on meals, the proposed mandate shows the depth of animosity toward highly paid executives on Wall Street. Some compensation consultants wonder, in fact, if the clampdown may be the leading edge of a shift away from the enormous pay packages of the past decade.

"Executive pay rates and Wall Street in particular have reached extraordinary heights," says John Challenger of Challenger Gray & Christmas, a Chicago-based executive outplacement firm. "We may be at the point where the pendulum is beginning to shift."

No doubt about it, financial executives have made a bundle – sometimes pocketing multimillion-dollar packages while their companies were taking losses that had been run up on their watch. Among them: Charles Prince, former head of Citigroup, ended up with "accumulated benefits" of $29 million; Stanley O'Neal, who ran Merrill Lynch & Co., got $161 million in accumulated benefits, and Martin Sullivan of AIG received a severance package of $47 million.

These packages have irked many in Congress. "We want to make sure that executives aren't given 'golden parachutes,' aren't given extraordinarily high salaries from the federal government stepping in," said Rep. Chris Shays (R) of Connecticut on "NBC Nightly News" on Sept. 22.

The bailout legislation racing through Congress this week aims to limit some of these practices, at least as far they concern CEOs and chief financial officers. Under the proposed new rules, when the Treasury buys more than $300 million in troubled assets, the selling institution must limit payments made if an executive leaves for a reason other than retirement (sometimes called golden parachutes) and must hold executive compensation to no more than $500,000 per year. Otherwise, the company will face additional corporate taxes, including a 20 percent excise tax on any golden parachutes.

Some critics say the effort is too weak.

"Congress missed a golden opportunity to use the leverage of the bailout to put tough controls on an out-of-control executive pay system," said Sarah Anderson, project director of the Global Economy Project at the Institute for Policy Studies (IPS), a progressive think tank in Washington. "Without clear limits on pay, the public is being asked to put their trust in Secretary [of the Treasury Henry] Paulson, a man who made hundreds of millions of dollars as a Wall Street CEO, to decide what's 'excessive,' " she said in a statement Monday.