When Sen. Chris Dodd decided to wage war on corporate excess, he had Wall Street fat cats in his sights, not people like Bob Jones, the folksy CEO of Old National Corp. in Evansville.
But Jones will suffer just the same. He figures his compensation will fall about 60 percent in 2009 compared with the prior year.
Dodd's 11th-hour amendment to the $787 billion economic stimulus plan—OK'd by Congress Feb. 13—imposes wide-ranging restrictions on how much executives can earn at companies receiving federal bailout money.
The legislation is retroactive—meaning it includes institutions like Old National, which received $100 million under the Troubled Asset Relief Program—or TARP—in December.
Old National didn't receive the money because Jones and his management team had driven the bank into the ground.
Rather, the bank was eligible for cash because the government deemed it healthy. The infusions into Old National and other well-capitalized financial institutions were intended to encourage lending during challenging times. Knowing the money was on the way, Old National boosted small-business loans 5 percent in the fourth quarter.
As CEO of the largest Indiana-based bank, Jones admits he's well-paid-using IBJ 's compensation formula, he earned $1.79 million in 2007. (Figures for 2008 haven't been released, though they're sure to be smaller.) Yet Jones, whose company's stock actually rose last year, is no poster child for corporate excess.
In 2009, Jones would have been eligible for a salary of $650,000, as well as a cash bonus of up to $488,000 and a restricted stock grant valued at up to $633,000.
Because Dodd's amendment bars cash bonuses, Jones won't be eligible to collect any of the $488,000. And because the amendment limits any form of bonus to no more than one-third of annual compensation, he could collect just $233,000 in restricted stock. The four other highest-paid executives at Old National also will have to comply with the restrictions.
"The reality is, I don't take any perks. I don't have a corporate jet. I drive everywhere. I do what I think is in the best interests of shareholders," Jones said. "I live to the highest moral and ethical standards. Now, I am being lumped in with those who do not."
But he understands the sentiments that drove Dodd's amendment, and shares in the public's outrage.
Numerous excesses have splashed into the headlines in recent months. For example, John Thain, the former CEO of Merrill Lynch, now has agreed to repay $1.3 million in renovations to his office suite last year, a spree that included purchasing an $87,000 area rug and a $35,000 commode on legs.
According to New York Attorney General Andrew M. Cuomo, Merrill Lynch paid out bonuses of more than $1 million to 696 people last year, just days before it was sold to Charlotte, N.C.-based Bank of America Corp.
"The decisions of certain Wall Street executives to enrich themselves at the expense of taxpayers have seriously undermined public confidence in efforts to stabilize the economy. American taxpayers deserve better," Dodd, a Democrat from Connecticut, said in a written statement.
Points well taken. But even many Washington politicians--including President Barack Obama--view Dodd's language as too severe, likely discouraging banks from participating or causing some to return money they otherwise would put to work getting the economy moving again.
In fact, New Castle-based Ameriana Bancorp is having second thoughts about whether to accept a $9.7 million TARP infusion it received preliminary approval for last month. The board and management will meet Feb. 23 to weigh how to proceed.
"You get a little concerned about government mandating what you can and can't do," CEO Jerome Gassen said. He said Dodd's amendment wouldn't affect the annual compensation Ameriana's top executives receive, but would bar them from receiving severance.
That "gets back to a fairness thing," he said. If another bank acquired Ameriana, it could fire executives and pay them nothing, even though they have contracts entitling them to severance.
The new provisions aren't enough to discourage Muncie-based First Merchants Corp. from accepting the $116 million in TARP money it received preliminary approval to collect this month.
First Merchants CEO Michael Rechin said he faults Congress for failing to differentiate between commercial banks like his and investment banks on Wall Street, where the worst abuses occurred.
Even so, the federal money is enticing enough to live with the downside, which he figures will be at least a 20-percent cut in his pay.
He said First Merchants already was strongly capitalized. But the bank wants to ensure it has the financial firepower to weather whatever lies ahead, including the possibility that 2009 and 2010 will be as bad as 2008.
"The greater good is accomplished by having our company benefit from the increased capital," he said. "At the end of the day, that's the bottom line."