Will New Comp Rules Spread Past Bailed-out Firms?

Sibson's Smith agreed that he doesn't see much in the legislation that will effectively rein in executive compensation. "I think this is too little, too late — more of a social salve than anything else," he said.

Smith did say that he hopes the compensation committees of some of the bigger financial firms "show some backbone" by publicly proclaiming that while they're participating in the bailout program, they will lower executive pay and suspend severance and golden parachute payments. "This would be a good time to take a lead role in executive compensation and support this rescue," he said.

Few are more frustrated with the bailout law's pay provisions than the Institute for Policy Studies, an independent research organization that has been criticizing executive compensation excesses for 15 years.

In a report issued Tuesday, the institute's Sarah Anderson lamented the law's lack of a direct limit on overall compensation. "There is nothing in the Treasury Department's new rules that would prevent a nationalized bank's board of directors from approving a $20 million CEO pay package — unless the Treasury Secretary decides that award poses an excessive risk to the institution," Anderson wrote. "Without clear limits on pay, the public is being asked to put their trust in Henry Paulson, a man who made hundreds of millions of dollars as a Wall Street CEO to decide what's 'excessive.'"

In the opinion of Barth at Foley & Lardner, though, the decreased tax deductibility, the restrictions on golden parachutes, and other provisions of the legislation will effectively put a ceiling on pay packages. "To say there's no limit on pay is just wrong," he said.

It will be interesting to see what happens, by the way, when executives who had signed agreements that included golden parachutes don't receive their payouts. "The employee would have a contractual claim against the company," Raskin said. However, neither the employee nor the company could make a claim against the government, the Treasury Department clarified on Tuesday.

Also on Tuesday, Treasury cleared up a potential loophole in the new law's golden parachute provisions. Under existing rules the term is defined as payments to executives upon involuntary termination, such as a takeover, sale, or liquidation of the company. But golden parachutes also allow executives to terminate their employment "for good reason," meaning upon malfeasance or acts of ill will by the company. The question was left open, then, as to whether executives of financial firms participating in the bailout could invoke this right and receive a severance. Now that question has been answered: they can't.

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