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President Barack Obama today announced a $500,000 cap on annual salaries and limits on other compensation of executives working for companies that accept future federal bailout funds, a move that will affect large credit card issuers if they accept additional federal assistance. American Express Co. CEO Kenneth I. Chenault received $26.2 million in total compensation in 2007, only $1.2 million of which came from his salary. Richard Fairbank, Capital One Financial Corp. chairman, president and CEO, received $20.4 million, none of which came from his salary but came from the value of option awards minus stock awards that year; Ken Lewis, Bank of America Corp. president and CEO, received $16.4 million total compensation, $1.5 million of which came from salary; and Charles Prince, former Citigroup Inc. chairman and CEO, received $15.1 million, $1 million of which came from his salary, according to CardLine sister Web site PaymentsSource.com. All four card-issuing financial institutions recently received federal Troubled Asset Relief Program assistance. Executives may receive company shares valued higher than the $500,000 threshold, but executives cannot sell those stocks until the company receiving assistance has repaid the government. The "reforms," which are not retroactive, also limit executives' severance packages. "As part of the reforms we are announcing today, top executives at firms receiving extraordinary help from U.S. taxpayers will have their compensation capped at $500,000–a fraction of the salaries that have been reported recently," Obama said in prepared remarks. Limits on compensation could drive some executives at card-issuing banks to seek work elsewhere, but many executives willingly accept compensation cuts as they help their companies weather economic hardships, says Jonathan Phillips, managing director of Magellan International LP. The Houston-based firm provides executive headhunting and management-consulting services to a variety of industries, including financial services. "When an industry's salaries are substantially lower than, say, consulting, private equity, or starting and running your own business, a lot of people will make those decisions (to leave their current employer)," Phillips tells CardLine. "If they're able to get more than half a million, they're probably good enough to get it from somewhere else." Even so, "about 80% of the senior executives I know will for a time give up personal wealth for the good of the firm." Obama's move to cap executive pay for firms receiving government assistance is appropriate, Phillips contends. And it could help ease executive-compensation negotiations for banks receiving assistance under the federal TARP initiative, he says. "He's trying to level the playing field," Phillips says of Obama's actions. "Now everybody in the world knows you don't negotiate. You're going to get half a million."
