Hunt on for loopholes in Obama exec pay caps

updated 6:59 p.m. ET Feb. 4, 2009

NEW YORK - The squeeze on big paydays for executives of bailed-out banks will probably leave Wall Street plenty of wiggle room.

Consultants on executive pay say the White House caps imposed Wednesday will probably apply only to a few executives — not star traders, brokers and salespeople who routinely earn whopping pay packages.

Others note Wall Street typically finds ways to exploit loopholes and figure this time will be no different.

"You've got a lot of people on Wall Street who are not executives but still make extremely big salaries," said Mark Borges, a principal at compensation consulting firm Compensia Inc. "I suspect this doesn't impact them at all."

The new rules require banks that receive "exceptional assistance" from the government to cap salaries, including cash bonuses, at $500,000 for senior executives.

If those firms wanted to pay their executives more, they would have to use stock that couldn't be sold until the bank had repaid the bailout money. The rules apply only to the future, not to banks that have already received bailout money.

Healthier banks that will receive bailout money technically would also face the $500,000 cap. But they could avoid it by providing full public disclosure and holding a nonbinding shareholder vote.

The White House is trying to stem rising public concern that financial firms are using billions in federal bailout dollars to pay for executive bonuses, corporate junkets and other perks.

The salary caps could also have other consequences — sending would-be U.S. bank executives fleeing to foreign firms or hedge funds, or discouraging banks from tapping into the bailout money.

And there are still unanswered questions about the salary caps. For example, the rules do not define what constitutes "exceptional assistance" from the government.

But the rules note that injections of federal cash similar to those given to JPMorgan Chase & Co. and Wells Fargo & Co., which each got $25 billion in bailout money, and many other banks would not necessary trigger the new salary caps.

By contrast, far more costly emergency bailouts, such as the $100 billion given to American International Group Inc. and the $40 billion given to each Citigroup Inc. and Bank of America Corp., would qualify as "exceptional assistance" and would subject such institutions to pay restrictions.

And the rules don't spell out how many executives would be subject to the cap. Compensation experts predicted anywhere from five to 25 executives per bank could face the new restriction. That would still represent only a tiny fraction of a large firm's brass.

Still, the $500,000 limit will hit some executives in their wallets.

In 2007, Bank of America CEO Ken Lewis received compensation valued at more than $20.4 million, according to a regulatory filing. That included $1.5 million in salary and more than $18 million in bonus, stock and option awards and other benefits.

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