[Congressional Record (Bound Edition), Volume 155 (2009), Part 19]
[House]
[Pages 25611-25614]
[From the U.S. Government Publishing Office, www.gpo.gov]




                    WALL STREET, WE ARE WATCHING YOU

  The SPEAKER pro tempore. Under a previous order of the House, the 
gentlewoman from Ohio (Ms. Kaptur) is recognized for 5 minutes.
  Ms. KAPTUR. Mr. Speaker, this week, The New York Times reported that 
Credit Suisse, the largest Swiss bank, stated how it will overhaul 
compensation for its banking executives. The changes go into effect in 
January and include their compensation for 2009 and 2010.
  Importantly, Credit Suisse ties compensation and bonuses to the 
firm's future performance and return on equity. In other words, if your 
decisions yield solid performance, you will be rewarded on that, not on 
arbitrary bonuses taken just because you can. I'd like to commend 
Credit Suisse's experience to other big banks in our country. We should 
follow suit in an even more rigorous reimposition of discipline.
  By contrast, in a speech on September 9, 2009, Goldman Sachs' Chief 
Executive Officer Lloyd Blankfein put forth some principles on 
compensation. We asked when Goldman Sachs was going to implement those 
changes; we haven't heard back. But Credit Suisse already did it; they 
did it in line with the principles established by the G-20 in 
Pittsburgh earlier this year.
  In their press release, Credit Suisse reaffirms the bank's commitment 
to fair, balanced, performance-oriented compensation policies that 
align long-term employee and shareholder interests.
  So, once again, Wall Street could have led the charge and embraced, 
for the sake of our Nation, reforms of employee compensation which 
rewarded short-term gains and encouraged excessive risk-taking as well 
as increased moral hazard. Instead, Wall Street stood up only for 
themselves again, first, last, and always. They simply have too much 
power.
  Moreover, Credit Suisse's approach claws back bonuses if the banks 
perform poorly. Why should America accept that if a bank performs 
poorly, that bonuses should be paid out when our taxpayers' money is 
propping them up and at risk? In particular, if the government saved 
your bank and therefore your pay despite your poor performance, why 
should you get a huge bonus? It makes no sense.
  Congress and the administration, by allowing huge bonuses in the wake 
of huge bailouts, have ceded our people's power to Wall Street. These 
individuals are making three, four, five, six--10 times as much as the 
President of the United States.
  Today, Obama pay czar, Kenneth Feinberg--who was not vetted by the 
Senate through normal procedures--is supposed to address this situation 
for our country. Feinberg is expected to cut the average pay only of 
the top earners at the seven bailed out firms, AIG, Bank of America, 
Citigroup, General Motors, Chrysler, GMAC, and

[[Page 25612]]

Chrysler Financial. Remember, the American taxpayer saved them all--for 
example, they saved Citibank from its downfall. So their jobs were 
saved, their companies were saved by us, yet they get bonuses?
  Some say we would be a lot worse off if this lopsided approach had 
not been imposed, but far too many Americans find it hard to imagine 
that as they have lost their jobs, their homes, their access to credit, 
their sense of hope, and their self-respect. Meanwhile, they see Wall 
Street titans enriching themselves even more and the biggest banks 
getting even bigger. That's what is happening across our country.
  Wall Street should have been leaders for our republic, helping the 
Americans whose money saved them, but their culture of ordinary greed 
continues to stampede forward. They simply don't care about the rest of 
us. The distance between those elites and our people are growing, and 
with each step the have-nots suffer more and pay for those that have 
far too much.
  Amidst the compensation fiasco is the core problem: These megabanks 
are too unaccountable and too big--some call them ``too big to fail.'' 
As many have said, those institutions too big to fail are actually too 
big to exist. It's time to break up the biggest banks, sell off their 
healthy parts, and never let another bank or financial institution 
become too big to fail. Wall Street comeuppance is long overdue.
  Main Street USA is paying close attention to your shenanigans. We 
don't intend to take the spotlight off until justice prevails and the 
stampeding bulls are put back in very tight cages.

                [From the New York Times, Oct. 21, 2009]

                  Credit Suisse Overhauls Compensation

                           (By Graham Bowley)

       As Wall Street looks forward to a new era of blowout 
     bonuses, the unthinkable is happening, at least at Credit 
     Suisse, the big Swiss bank. It said on Tuesday that it would 
     radically change the way it paid its employees.
       In a break with longstanding industry practices, Credit 
     Suisse intends to alter the mix of salaries and bonuses for 
     its top employees, tie the bonuses to a specific financial 
     measure and effectively claw back the payouts if the bank's 
     fortunes dim.
       The move will not necessarily reduce compensation at Credit 
     Suisse, which is moving aggressively to compete with American 
     banks on Wall Street. But the shift nonetheless brings Credit 
     Suisse in line with pay practices endorsed in September by 
     the Group of 20 nations and puts the bank ahead of resurgent 
     rivals like Goldman Sachs, some of which are contemplating 
     similar changes but have yet to make their plans public.
       Goldman, for its part, announced new pay principles in May, 
     which it says embrace best practices on compensation.
       A year after Washington rescued the financial industry, 
     bonuses are once again front and center as some big banks 
     roar back in profitability. Goldman, for instance, is on 
     track to award bonuses that could rival the record payouts it 
     made at the height of the boom.
       But the likelihood that Wall Street will enjoy big paydays 
     as many ordinary Americans are struggling has angered some 
     policy makers and created a public relations headache for 
     banks. Many are struggling to defuse the resentment directed 
     at the industry.
       The Credit Suisse plan will cover roughly 2,000 employees 
     in the United States. Top executives will receive a greater 
     portion of their total compensation in the form of their 
     monthly cash salaries, while bonuses will be split evenly 
     between cash and stock.
       The stock will vest over four years, and the cash portion 
     will pay out in three. But both components will be adjusted 
     based on the bank's performance over that period, with a 
     particular emphasis on its return on equity, a closely 
     watched financial measure. The performance of an executive's 
     business will also be taken into account.
       By tying payouts to a specific measure like return on 
     equity, Credit Suisse will essentially be able to take back 
     bonuses in the event the bank's fortunes take a turn for the 
     worse. Credit Suisse earlier introduced a bonus plan linked 
     to some of the bank's troubled assets.
       Claw-back provisions are becoming increasingly common on 
     postcrisis Wall Street. Critics say the industry's decades-
     old bonus culture, which focused on short-term profits, 
     encouraged the excessive risk-taking that led to the crisis. 
     Morgan Stanley introduced provisions for a portion of its 
     employees' bonuses last year, and another Swiss banking 
     giant, UBS, imposed similar rules on deferred pay.
       But Credit Suisse executives and compensation experts said 
     the bank's plan was the most detailed and comprehensive yet 
     to take back pay if senior executives--and the bank--failed 
     to perform adequately.
       ``As far as we know, we are the first major bank to 
     announce a compensation structure that is consistent with the 
     best practices laid out at the recent G-20 summit,'' Brady W. 
     Dougan, chief executive, said in a statement.
       The bank is also introducing a minimum share ownership 
     requirement for members of management committees and the 
     executive board to align the most senior executives' pay with 
     shareholders' interests, although it did not specify the new 
     thresholds.
       Lynn A. Stout, professor of securities law at the 
     University of California, Los Angeles, said Credit Suisse's 
     four-year stock deferral was at the outer limit of what many 
     banks were considering.
       She said many other banks were thinking of changing 
     compensation practices along similar lines to rein in 
     practices that made multimillionaires out of many financial 
     executives during the housing bubble.
       ``You get a sense that there is a cultural shift in 
     boardrooms and a new awareness about looking to the longer 
     term,'' she said.
       At a meeting of the G-20 last month, leaders agreed on 
     recommendations to defer bonus payouts for several years and 
     reduce the incentives for people to take short-term gambles, 
     although they avoided any explicit call for a ceiling on 
     remuneration. The return to big profits at some banks and big 
     bonus payouts, even at firms that received billion-dollar 
     federal bailouts, has raised questions about whether 
     compensation should be even more tightly controlled.
       In the summer, the Securities Industry and Financial 
     Markets Association, a financial industry trade group, put 
     forward guidelines on best practices, which included tying 
     bonuses more closely to long-term performance and a more 
     independent role for bank compensation committees.
       The Federal Reserve is now preparing to release its own 
     guidance on compensation for the more than 5,000 banks it 
     regulates. It would cover staff at all levels within banks, 
     not just at the most senior levels, and would apply to 
     Goldman and Morgan Stanley, which became bank holding 
     companies last year.
       In broad scope, the new rules being considered depart from 
     the largely hands-off approach that dominated bank regulation 
     in the United States for the last three decades. They give 
     banks freedom in how they structure their compensation. The 
     rules are intended to inhibit pay plans that encourage 
     reckless behavior by rewarding only short-term gains. But 
     they would not stop million-dollar pay packages or address 
     issues of fairness.
       The stimulus bill that President Obama signed into law this 
     year restricts companies that accept federal bailouts from 
     paying bonuses that exceed one-third of an executive's total 
     annual compensation.
       Now, Kenneth R. Feinberg, the administration's pay czar, is 
     due to publish by Oct. 30 his finding on pay at the seven 
     major banks that still have not returned large amounts of 
     federal support.
       His report will include judgments on the 25 most heavily 
     compensated executives at each of the banks--citing pay 
     levels and composition of pay, and whether compensation is 
     properly aligned with performance.
                                  ____


  Credit Suisse Announces Its Compensation Structure for 2009 and 2010

       Zurich.--October 20, 2009.--Credit Suisse today announced 
     its compensation structure for 2009 and 2010. The new 
     structure is consistent with the guidelines for best practice 
     that were recently announced at the G-20 summit and reaffirms 
     the Bank's commitment to fair, balanced and performance-
     oriented compensation policies that align long-term employee 
     and shareholder interests.
       Brady W. Dougan, CEO of Credit Suisse Group, said: ``At a 
     time of strong focus on executive compensation, we are 
     announcing a compensation structure that enables us to strike 
     the right balance between paying our employees competitively, 
     doing what is right for our shareholders and responding 
     appropriately to regulatory initiatives and political as well 
     as public concerns.''
       ``We have been using deferred, share-based compensation 
     instruments for many years and we continue to be committed to 
     these principles. They are at the heart of our compensation 
     structure for 2009 and 2010.''
       ``The changes to our compensation system follow a number of 
     measures Credit Suisse has taken over the past two years in 
     response to changes in the financial services sector. These 
     measures include making adjustments to our business strategy, 
     significantly reducing our risk exposures, including 
     introducing a reduced-risk, capital-efficient business model 
     in the Investment Bank, and strengthening our capital base.''


                        Overview of key features

       The changes announced today will be effective from January 
     1, 2010 and will apply to compensation awarded for the year 
     2009. The most important features of the structure are:
       1. A shift in the mix of discretionary variable (bonus) and 
     fixed compensation for Managing Directors and Directors, 
     which will result in a change in the proportion of non-
     deferred compensation paid as fixed base salary.

[[Page 25613]]


       2. The introduction of two new instruments for deferred 
     variable compensation awarded to Managing Directors and 
     Directors: Scaled Incentive Share Units (SISU) and Adjustable 
     Performance Plan Awards (APPA). A significant proportion of 
     this population's variable compensation will be delivered in 
     these new type of awards (50% each).
       SISU are similar to Incentive Share Units (ISU), an equity 
     based instrument that has been in place for the past three 
     years. The new SISU will deliver a base share amount on a 
     four-year pro-rata basis. Delivery of additional shares will 
     depend on the average share price as well as return on equity 
     (RoE) over four years.
       APPA is a cash-based award which will have a notional value 
     that adjusts upward annually based on Credit Suisse's RoE 
     over three years. A mechanism will adjust the outstanding 
     awards downward, should the business area of the employee be 
     loss-making.
       The principles and instruments used for Managing Directors 
     and Directors also apply to members of the Executive Board 
     but not to employees at the level of Vice President or below.
       In addition, Credit Suisse will introduce minimum 
     requirements relating to Credit Suisse share ownership for 
     members of Divisional and Regional Management Committees and 
     for the Executive Board.


       Conformity with G20 guidelines and regulatory environment

       The new structure and the new vehicles are consistent with 
     the guidelines for best compensation practices that were 
     recently announced at the G-20 summit and reaffirm the Bank's 
     commitment to fair, balanced and performance-oriented 
     compensation policies that align long-term employee and 
     shareholder interests. Credit Suisse will continue to refine 
     the provisions of the plan as well as the governance process 
     for compensation decisions and disclosure to shareholders, 
     based on competitive factors and the evolving regulatory 
     environment.


            Details of the changes in compensation 2009/2010

       The following is a brief summary of the changes and the new 
     compensation instruments announced today. A detailed 
     description will be included in the Group's Annual Report 
     2009.


      Changes to base salary for Managing Directors and Directors

       In order to strike an appropriate balance between fixed and 
     variable compensation, Credit Suisse is planning a shift in 
     the mix of variable and fixed compensation for Managing 
     Directors and Directors. This will result in the payment of 
     an increased proportion of compensation in the form of fixed 
     base salary. Employees up to and including Vice Presidents 
     will continue to be reviewed for potential annual salary 
     adjustments, consistent with previous practice.


                         Variable Compensation

     Cash Awards
       Discretionary variable compensation will continue to be 
     paid in unrestricted cash for amounts below CHF 125,000 / USD 
     100,000 (or the local currency equivalent). For higher 
     amounts, table will indicate the proportion of variable 
     compensation subject to deferral. Deferred compensation will 
     be split 50/50 between SISU and APPA.


                      Scaled Incentive Share Units

       Scaled Incentive Share Units (SISU) are similar to the 
     existing Incentive Share Units (ISU) with a new element that 
     increases or decreases in value based on Credit Suisse's 
     average RoE. As with traditional ISU, the base share amount 
     vests annually, in the case of SISU on a four-year, pro-rata 
     basis. My additional shares will vest on the fourth 
     anniversary of the award date, based on the price of Credit 
     Suisse Group AG registered shares. A new feature will link 
     the final number of additional shares to an additional 
     factor: If Credit Suisse's average RoE over the four-year 
     period is higher than a pre-set target, the number of 
     additional shares will be adjusted upwards, and if it is 
     below the target, the number of additional shares will 
     decrease.


                   Adjustable Performance Plan Awards

       Adjustable Performance Plan Awards (APPA) will have a 
     notional cash value subject to a three-year, pro-rata vesting 
     schedule. Awards adjust upward on an annual basis using 
     Credit Suisse's RoE in the respective year as a multiplier. 
     However, should a business area be loss-making, outstanding 
     APP awards held by employees of that business area will be 
     adjusted downwards. The metrics within the revenue divisions 
     will be based on each business area's financial contribution. 
     The metrics for Shared Services, Regional Management and 
     embedded support functions within the divisions will be based 
     on the financial performance of Credit Suisse Group.
                                  ____


                     [From Reuters, Oct. 22, 2009]

                 Czar to Substantially Cut Pay: Summers

                  (By Caren Bohan and Karey Wutkowski)

       Washington (Reuters).--Top White House economic adviser 
     Lawrence Summers said on Wednesday the administration's pay 
     czar will ``substantially reduce'' the paychecks at firms 
     that have received billions of taxpayer dollars.
       ``With respect to the companies that have been major 
     recipients of federal support, Ken Feinberg is reviewing them 
     . . . (and) will, I suspect, produce an outcome where they 
     will be very substantially reduced,'' Summers told the 
     Reuters Washington Summit.
       Feinberg, the pay czar appointed by President Barack Obama 
     in June, is expected to cut total compensation by an average 
     of 50 percent for the top earners at seven bailed-out firms, 
     sources familiar with the matter said on Wednesday.
       The administration has faced public outrage, as Wall Street 
     firms that were recently propped up by federal assistance 
     have brought their bonuses back to pre-crisis levels even as 
     the general population faces the highest unemployment level 
     in 26 years.
       Summers said Feinberg's rulings--which are expected to be 
     publicly released in the coming days--will ensure taxpayers' 
     interests come before those of shareholders and incumbent 
     management at the beleaguered firms.
       The seven bailed-out firms under Feinberg's jurisdiction 
     are AIG, Bank of America, Citigroup, General Motors, 
     Chrysler, GMAC and Chrysler Financial.


                   SEES FINANCIAL REFORM BY YEAR END

       Summers also said he was still hopeful that legislation to 
     broadly rewrite U.S. financial regulations would pass by the 
     end of the year.
       ``I don't see any reason why it can't get done this year,'' 
     Summers said.
       Analysts following the debate on Capitol Hill have become 
     increasingly skeptical that Obama can meet his goal of 
     enacting it by year-end. Some say that early next year might 
     be a more realistic time frame.
       While some critics say the bill is not robust enough, 
     Summers said he believed the changes would have a chance to 
     have a major impact on financial stability for years to come.
       He said that while the administration wants to guard 
     against efforts by the financial industry to water down the 
     bill, he said the main principles behind it were not at risk.
       ``I've always put this in terms of some core principles,'' 
     Summers said.
       If an institution is big enough and interconnected enough 
     that its failure could damage the financial system, then it 
     must have a regulator that is accountable, he said. ``And 
     there has to be a plan in place for managing your failure if 
     it comes.''
       Summers said the proposals under consideration achieve that 
     goal.


                            TAXPAYERS FIRST

       The administration is also committed to fundamentally 
     reforming pay, starting at the firms that have received 
     multiple government bailouts, Summers said.
       ``It is important where taxpayers have made a central 
     contribution to make sure that taxpayer interests are being 
     put first rather than those of shareholders and certainly 
     rather than those of incumbent management and that's why Ken 
     Feinberg is involved in reviewing compensation levels at the 
     companies where the TARP has made the most major 
     investments.''
       Officials have also proposed a broad crackdown on pay, 
     including giving shareholders more say on compensation 
     packages, forcing firms to disclose more on their pay 
     practices and encouraging regulators to shut down risky 
     compensation schemes.
       ``With respect to companies that are not currently 
     recipients of major support, the focus is really going to be 
     more on process and more on the incentives they create,'' 
     Summers said.
       Amid the rhetoric of a strong clampdown on compensation 
     that encourages risk taking, the administration has been 
     careful to say it does not believe in setting explicit caps.
       Summers said the administration is sensitive to the need 
     for firms to keep top talent and remain competitive, while 
     not letting Wall Street return to its old ways.
       ``We are concerned that some in the financial sector would 
     like to go back to the regulatory nonculture and risk 
     management nonculture of the recent past. That wouldn't be 
     acceptable to us,'' he said. ``But the president's always 
     said that we think it's very important that people succeed in 
     America so framing this in terms of the goal being to reduce 
     profits or to eliminate compensation, that would not be our 
     approach.''
                                  ____


                 [From Financial Times, Oct. 21, 2009]

              UK Bank Governor Calls for Lenders' Break-Up

                            (By Chris Giles)

       Banks should be split into separate utility companies and 
     risky ventures, governor of the Bank of England Mervyn King 
     urged last night, saying it was a ``delusion'' to think 
     tougher regulation would prevent future financial crises.
       Mr. King's call for a break-up of banks to prevent them 
     becoming ``too important to fail'' puts him sharply at odds 
     with the direction of domestic and international banking 
     reform.
       Mr. King borrowed Churchillian language in a speech in 
     Scotland to highlight the burden banks had placed on 
     taxpayers. ``Never in the field of financial endeavour has so 
     much money been owed by so few to so

[[Page 25614]]

     many. And, one might add, so far with little real reform.''
       The forcefulness of Mr King's language reflects his belief 
     that the structure of the banks needs to be put firmly on the 
     international regulatory agenda, where focus has been on 
     strengthening capital and regulating bankers' pay. The Bank 
     governor wants to see the utility aspects of banking--payment 
     systems and deposit taking--hived off from more speculative 
     ventures such as proprietary trading. ``There are those who 
     claim that such proposals are impractical. It is hard to see 
     why,'' he said.
       Although he said ideas to force banks to hold debt that 
     automatically turns into equity in a crisis were ``worth a 
     try'', he downplayed their likely effect. ``The belief that 
     appropriate regulation can ensure that speculative activities 
     do not result in failures is a delusion.''
       Many experts believe the governor will get his way on 
     separation but by default rather than by design, because 
     proposals for tighter capital regulations on risky parts of 
     banking will make these unprofitable and banks will choose to 
     ditch them.

                          ____________________