House Passes Weaker Bill as Furor Tempers Over AIG Bonuses

Sources: WSJ, House Passes New, Weaker Bill Curbing Bonuses; NYTimes, Bonus Bill Passes House, to Republicans’ Chagrin

After the U.S. Senate effectively quashed the House of Representative’s severe reaction a few weeks ago to the announcement of AIG, which received over $180 billion of federal bailout funding, paying executives several million in bonuses, the House passed a second, less-severe bill on Wednesday. The new bill prohibits firms who received funds from the Troubled Asset Relief Program (“TARP”) from making payments to executives as part of new or existing compensation packages that are deemed “unreasonable or excessive.” The new bill also allows compensation packages approved before the enactment of TARP to be curtailed.

The bill requires that companies award bonuses and other supplemental payments according to performance-based standards set by federal regulators, including the Treasury Department, the Federal Financial Institutions Examination Council and the TARP Congressional Oversight Panel. The Treasury would have far more discretion in defining “excessive” bonuses than the previous bill allowed for.

Congressional Republicans decry the measure as unwarranted government intervention in the private sector. Some lawmakers expressed concern that the new policy would disrupt efforts to stabilize the financial sector because companies would be more inclined to pay back their bailouts more quickly in order to be able to give their executives competitive compensation packages to retain them. Senate enthusiasm for bonus curtailing has waned as reports indicate that many AIG executives have given back the controversial payments.

Questions for Discussion: Do you think the AIG bonuses are still an issue that policymakers should address? To what extent do politics (i.e., reelection and “political capital”) factor into their decisions to vote for or against this bill? Is it good policy to stand behind, even though most executives have returned their bonuses?