Labor funds file bailout-related proposals

When crisis hit banks and Wall Street institutions in September, Congress voted that the U.S. Treasury Department could disburse $700 billion to bail them out, but set few restrictions on how the money was spent.

Unions are currently developing ideas to shore up their multi-employer pension plans and expect to work with the Obama administration to implement them. In the meantime, they are taking immediate steps to ensure that taxpayers have some control over the institutions getting bailed out.

The International Brotherhood of Teamsters has joined with the Laborers’ International Union of North America to file new proposals that seek compensation reforms at companies that participate in the U.S. Treasury Department’s bailout program.

The two labor groups argue that the pay restrictions in the Treasury’s Troubled Asset Relief Program (TARP) "fail to adequately address the serious shortcomings of many executive compensation plans." Instead, the unions urge directors to adopt "more rigorous executive compensation reforms that we believe will significantly improve the payfor- performance features of the company’s plan and help restore investor confidence."

According to the Associated Press, more than 110 financial firms have indicated that they likely will participate in the TARP’s Capital Purchase Program, under which the government has so far committed up to $250 billion to buy preferred stock. The labor funds have filed this resolution at JPMorgan Chase, KeyCorp, Bank of America, American Express, and SunTrust Banks, and plan to submit the proposal at more than 45 other firms.

The proposal calls for directors to adopt the following reforms:

* Limit annual incentive compensation to an amount not exceeding one times the senior executive’s annual salary;

* Require that a majority of long-term compensation be awarded in the form of performance-vested equity instruments;

* Freeze new stock option awards to senior executives, unless the options are indexed to peer group performance so that relative, not absolute, future stock price improvements are rewarded;

* Require senior executives to hold for the full term of their employment at least 75 percent of the shares of stock obtained through equity awards;

* Prohibit accelerated vesting for all unvested equity awards held by senior executives;

* Limit all senior executive severance payments to an amount no greater than one times the executive’s annual salary.

"At this critically important time for our nation’s economy, the benefits afforded the companies from participation in the TARP justify these more demanding executive compensation reforms," the unions argue.

Ted Allen, RiskMetrics Group