Some Republicans have been quick to blame Democratic Sen. Chris Dodd of Connecticut for allowing big bonus payments to AIG executives. They get the facts backward. The public record shows Dodd authored an amendment that would have prevented "any bonus" being paid to top executives of firms getting bailout money. It was the White House and the Treasury Department that insisted Dodd’s amendment be watered down to apply only to bonuses paid under agreements signed in the past five weeks. Treasury Secretary Timothy Geithner has taken public responsibility for that. We lay out the full story in our Analysis section.
Some Republicans are blaming Democratic Sen. Chris Dodd of Connecticut for millions in bonus payments paid by taxpayer-owned American International Group. For example, in a March 19 fundraising e-mail message to "Dear Republican friend," the National Republican Senatorial Committee’s executive director, Rob Jesmer, claimed that:
NRSC’s Jesmer, March 19: [Dodd] placed an amendment in the "stimulus" bill that allowed for banks bailed out with taxpayer money – including A.I.G. – to hand out huge bonuses without any government oversight or regulation, as long as those bonuses were issued before February 11.
Jesmer gets his facts backward. The truth is that Dodd, as chairman of the Senate Banking Committee, was responsible for getting Senate passage of a provision that might have prevented the AIG bonuses. The public record reflects that Dodd championed tougher provisions than the White House or the Treasury Department wanted, and that the Obama administration lobbied for removal of the Dodd language from the stimulus bill that the president eventually signed. Dodd protested at the time, and agreed to the removal of his language only under protest.
Dodd’s Proposed Ban
As it was passed by the Senate, the stimulus bill contained a strict prohibition on recipients of TARP funds paying "any bonus" to at least the 25 highest-paid employees – or more, at the discretion of the Secretary of the Treasury. The language is contained on page 736, and it said the Treasury Department’s regulations governing recipients of funds under the Troubled Assets Relief Program (TARP) "shall" contain:
H.R. 1, Senate version: … a prohibition on such TARP recipient paying or accruing any bonus, retention award, or incentive compensation during the period that the obligation is outstanding to at least the 25 most highly compensated employees, or such higher number as the Secretary may determine is in the public interest …
This language was authored by Dodd, who offered it as an amendment to the Senate bill on Feb. 4. He said it was aimed at quelling public anger over lavish pay for executives of bailed-out financial firms. "Many of our constituents are so angry with what they see in executive compensation, it is difficult to have a conversation about the larger questions," he said. The amendment passed quickly on a voice vote.
As was widely reported at the time, Dodd’s language was much tougher than the White House wanted. No such language appeared in the version passed by the House. When the two versions went to a Senate-House conference to work out a final compromise, Dodd’s strict ban was rewritten. Most important, the final bill said the prohibition on bonus payments (page 404) …
H.R. 1, Final version: … shall not be construed to prohibit any bonus payment required to be paid pursuant to a written employment contract executed on or before February 11, 2009, as such valid employment contracts are determined by the Secretary or the designee of the Secretary.
In simple language, Dodd’s ban would have applied to AIG and any institution that had yet to repay TARP funds, regardless of whether existing employment contracts called for the bonuses. The bill that emerged from the House-Senate conference committee, and was signed into law by President Obama, only applies to bonus agreements made after Feb. 11.
White House Objections
It was no secret at the time that the White House opposed Dodd’s strict bonus ban and asked him to back down. For example, the Wall Street Journal reported:
WSJ, Feb. 14: The administration is concerned the [Dodd] rules will prompt a wave of banks to return the government’s money and forgo future assistance, undermining the aid program’s effectiveness. Both Treasury Secretary Timothy Geithner and Lawrence Summers, who heads the National Economic Council, had called Sen. Dodd and asked him to reconsider, these people said.
Similarly, the following day the Hill newspaper reported that Dodd and the president were "at odds" over the bonus ban.
The Hill, Feb. 15: Administration officials worry the strict compensation limits will impede lending because smaller banks won’t want to take the bailout money, or won’t keep it for long.
And White House Senior Adviser David Axelrod acknowledged in television interviews that the administration had "concerns" and was working to change Dodd’s bonus language. Axelrod said on NBC’s "Meet the Press":
Axelrod Feb. 15, "Meet the Press": We believe that there should be limitations [on bonuses]. And we’re going to work with Congress to, to administer them in a way that’s, that’s practical. NBC’s David Gregory: So are you going to try to fix this? Axelrod: We’re going to, we’re going to have a dialogue with Chairman Dodd and, and Frank and, and talk this through.
And he said the same day on "FOX News Sunday"
FOX’s Chris Wallace, Feb. 15: Is the White House going to try to soften that set of restrictions on pay?
Axelrod: [The president] announced his own guidelines for how we should restrict that. In some ways, they’re tougher than the ones that the Senate passed. They have a hard cap, for example, on compensation. And in other ways they differ, but — in other ways they differ. So we’re going to work with them to come up with a …Wallace: Work with whom?
Axelrod: … good approach. With the – with the Senate to come up – and the House – to come up with a – an appropriate approach to this. …
Wallace: And do you worry that what they’ve passed in the economic stimulus could be counterproductive?
Axelrod: Well, obviously, Secretary Geithner and Mr. Summers had concerns about that, and they expressed those concerns. But those concerns are at the margins, and the goal is one we share.
"I Agreed Reluctantly"
After public outrage erupted over payment of the AIG bonuses, some reports seemed to blame Dodd for inserting the Feb. 11 cut-off that eviscerated his own bonus ban. But Dodd told CNN March 18 he had nothing to do with the change. That’s true enough; he was not even a member of the Senate-House conference that wrote the final compromise. The conference committee’s report is signed by Democratic Sens. Daniel Inouye of Hawaii, Max Baucus of Montana and Harry Reid of Nevada, and Democratic House members David Obey of Wisconsin, Charles Rangel of New York and Henry Waxman of California. No Republican lawmakers were among the conferees. Later Dodd conceded that he had agreed to the Feb. 11 date, but Dodd told CNN that he went along only reluctantly and under pressure, in order to preserve any sort of bonus ban at all.
Dodd, March 18: The administration, it’s been widely reported, had problems with that amendment, as others did as well. And they came and they said they would like to modify that amendment. The alternative, frankly, was to have happen to my amendment what happened to [another] amendment, and that was to be dropped altogether. I was vehemently opposed to that. … And so we agreed to the modification.
And as we were wrapping up this article, Treasury Secretary Geithner admitted in an interview with CNN that he pushed for the Feb. 11 language in the final stimulus bill. CNN reported:
CNN, March 19: Geithner said the Treasury Department did talk to Sen. Chris Dodd about a clause he put forth that would have strictly limited executive bonuses. The Treasury Department was concerned that legislation that would restrict contractual bonuses would not hold up to legal challenges, Geithner said. "We expressed concern about this specific version. We wanted to make sure it was strong enough to survive legal challenge," Geithner said.
We take no position on whether Dodd’s bonus ban was a good idea or a bad idea, and we have no way of saying whether or not it might have caused the legal and practical problems that White House and Treasury officials feared. But it’s a matter of record that Dodd favored a tougher ban than the one that became law, and was pressured by others to back down. Anyone looking for a scapegoat needs to search elsewhere.
– by Brooks Jackson
Solomon, Deborah and Maremont, Mark. "Bankers Face Strict New Pay Cap; Stimulus Bill Puts Retroactive Curb on Bailout Recipients; Wall Street Fumes." Wall Street Journal, 14 Feb 2009.
Soraghan, Mike. "Obama, Dodd clash on executive pay." The Hill, 15 Feb 2009.
Transcript: "‘Meet the Press’ transcript for Feb. 15, 2009." NBC News, 15 Feb 2009.
Transcript "David Axelrod on ‘FNS’." Fox News, 15 Feb 2008.
"Dodd: Administration pushed for language protecting bonuses." CNN.com, 19 March 2009.
"Geithner says he should have known about bonus problems sooner" CNN.com, 19 March 2009.