Obama hails companies' pay cuts

Obama said huge bonuses to executives in companies yet to repay their government bailouts "offend our values"

President Barack Obama has welcomed plans to force some companies which accepted government aid during the financial crisis to cut executive pay.

Firms paying bosses vast bonuses while getting state assistance offended peoples' values, the president said.

Under Treasury plans, seven companies must slash the basic salaries of their 25 best-paid employees by up to 90%.

Separately the US Federal Reserve wants to prevent bank bosses from taking excessive risks while pursuing bonuses.

It proposes being able to veto the pay of any employee able to take risks that might threaten a firm's stability.

But the Fed said it would not set pay caps or outlaw specific practices.

'Offends values'

The Treasury plans apply to Bank of America, American International Group (AIG), Citigroup, General Motors, GMAC, Chrysler and Chrysler Financial - the seven companies that received the most aid from the US Treasury.

As well as its top-earners facing a 90% pay cut, the total paid to each firm's 125 top earners would be halved under the proposals.

"It does offend our values when executives of big financial firms that are struggling pay themselves huge bonuses even as they rely on extraordinary assistance to stay afloat," President Obama said.

Treasury Secretary Timothy Geithner also backed the plan, drawn up by Treasury official Kenneth Feinberg - the so-called pay tsar.

"We gave him the difficult task of cutting excessive pay, striking a balance between compensation and risk-taking and keeping strong management teams in place to help the economies recover - all in the public interest," Mr Geithner said.

'Appropriate'

Unlike the Treasury plan, the Fed proposal would cover thousands of banks, including many that did not need to access government bail-out funds.

The Fed wants to review pay policies at those banks - and can veto them if it feels they encourage risk-taking by executives or traders.

"The Federal Reserve is working to ensure that compensation packages appropriately tie rewards to longer-term performance and do not create undue risk for the firm or the financial system," said Fed chairman Ben Bernanke.

The 28 biggest banks would be forced to develop their own plans to ensure that pay and bonuses did not encourage undue risk-taking, and to have those plans approved. The banks were not identified.

Smaller banks - where pay is typically less - would not have to submit their proposals for controlling pay, but would be subject to reviews by the Fed.

Bonus 'outrage'

President Obama has been outspoken about the payment of bonuses while the rest of the country is still suffering from the fallout of the global financial crisis.

Earlier this year, the president said he was "outraged" by plans by bailed-out insurer AIG to pay $165m (£99m) bonuses pledged to executives.

And this week his senior aide, David Axlerod, called the payouts "offensive", telling ABC TV that firms "ought to think through what they are doing and they ought to understand that a year ago a lot of these institutions were teetering on the brink and the United States government and taxpayers came to their defence".

Excessive pay and bonuses have been cited as one of the causes of the world economic downturn, with bankers accused of taking greater risks driven by potential rewards.

At the recent G20 summit world leaders sought to have bonuses linked to long-term performance.

However, the Pittsburgh meeting produced no plan for general caps on the amount banks could pay out - something that some European governments wanted.