shareholder proposal rules to require companies to include proposals related to the nomination process and proxy materials provided the requirements of the rule are met. if adopted we believe these rules would offer shareholders a stronger voice determining who

oversees the management in the companies they own. thank you for inviting me to appear before you today to get on behalf the agency we look forward to working with congress and this committee going forward on these issues and i would be happy to answer any questions you have. >> i do want to comment some of what we heard earlier from my republican colleagues. i think what we have heard today is the final repudiation of the bush administration by many of my republican colleagues because we have heard a fairly vigorous and thorough denunciations of various actions of that administration. no more bailouts, no more taking over companies. well, aei g.i. remember into timber 2008 been told by sector paulson and chairman bernanke, two bush appointees they decided with no congressional input or advice to advance 82 bill in dollars to aig. today's later we were asked to initiate the t.a.r.p. program.

subsequently worked with the bush administration and after zero and we were unable to pass the bill because the house passed and senate didn't involving the auto companies the bush administration initiated it, so we are now talking about a bush administration initiation of funding for aig. a bush administration request to congress to create the t.a.r.p. and the bush administration intervention without congressional final action in the auto companies. ..

more than one-third of the money advanced to banks had already been paid to the treasury. we have to decide what we do with that but does consider the whole 700 billion gone have to cope with the fact that approximately 200 billion advance in less than a year and more than 70 billion has come back some of which exceeded the loans because there was interest. these are complicated questions to be worked out and i would not ordinarily have brought this up but listening to what i heard before, yes we have had a problem with bailouts for the second point i would make is that say on pay comes from england. it is not some intervention. it is not a bailout. the compensation matters we talked about, is one thing to

have fair of compensation restrictions when people are getting money correctly. it is another when we are talking about risk assessment so i will now ask my question of these three gentlemen, one of the arguments we have heard is that if we restrict compensation it will contribute to capital flight, that people will flee america. distant my experience in the first place american company-- corporate executives were awarded far better in dollar terms in other ways than others. sometimes i think the japanese executives and the american executives are paid the same amount except in our case it is dollars and in their case it is again so the difference means a lot more, but i would ask all three of you, is there a danger if we world of say on pay or some other rules you are proposing that we would add to capital flight that some of the best and brightest to live from the financial system with such-- would now decide that they were not sufficiently appreciated and

would move to other countries? i will begin with mr. sperling. >> chairman frank, i suppose if one were to put a hard and arbitrary cap on the top talent at a firm, that could lead to flight in the kind of deterioration that you mention, but as far as i know, i can say for certain, with certainty that there is nobody in the obama administration who is proposing such things. what we are proposing in the legislation, we did put forward yesterday, is greater transparency and accountability to the owners of the company. we find, and i think practice has shown that sunshine and transparency does have a powerful deterrent effect on improper or ill-advised behavior and i think even more important, it starts an important dialogue. >> i want to talk specifically

about the competitive peace. >> i do not believe anything we are proposing today or you have proposed would have a deterrent-- >> mr. chairman one good piece of information here is that the world is looking at this problem as well so the british have already begun to consider it, the swiss have proposed some principles similar to what we have discussed today. let's imagine the board is worked on the international panel, so this is a global issue with a global set of solutions that the globe is coming to consensus on. >> thank you. mr. backus. >> mr. chairman, your earlier remarks, i would just say whether we ted this on bush, sort of pin the tail on the donkey or whether we pen it on the elephant, it is no all our problems and it is no, it is not then and i just ask that we all work together to get us out of

this, these bailouts in these government-funded programs that we extricate ourselves from that and the deficit spending that we have witnessed. we will work together on that i hope. let me say this. gene, you and i have worked on several things. i have a deep respect for you and i am very much agree with you that one of the contributing factors to the excess risk taking, central to the crisis was compensation that was linked to short-term gains without any consideration of the long-term risk. and as you say, across the sub-prime mortgage business brokers are compensated in ways that placed a high frame on volume without regard to whether the borrowers have the ability to make those payments. that is pretty clear. i associate myself with all of

those remarks. i also associate myself with the remarks you have made the top executives often, those golden parachutes word in line with shareholders' interests. in fact, what you said, streets in impression. a lot of my constituents have this impression. that there's a double standard in which top executives are rewarded for failure at the same time working families are forced to sacrifice. we have seen instances and a lot of cases where executives received these tremendous salaries as they went out the door on failing corporation's and at the same time, most of the workers were being given pink slips. or their retirement benefits or healthcare was being cut back. having said that, i take those is given. you say the goal of the administration now is to move

compensation committees from being independent in name to be in independent and that. not only would committee members beecher land appendant but they would be given authority to maintain compensation consultants and legal counsel, along with the funding necessary to do so. this legislation was-- and i think we have had testimony from the sec to create standards for ensuring the independence of compensation consultants, shareholders with the confidence-- compensation committees receiving objective, expert advice. now, that is i think, what all you jones hamid menke that is the major mandate by the government and the corporate government? >> thank you congressmen. i feel that this is just simply trying to insure that the independence of comp committees

is, as it is advertised which is independent, and the reality is, and i say this as a person who has participated in a board of directors, if the ceo controls the compensation consultants, you can have an independent compensation committee, but the power and the information that is being gathered is being gathered by somebody who almost inherently has a conflict of interest in this situation. i think one of the things you try to do-- it is not to intervene or micromanage but i think when you can have transparency and reduce conflicts of interest, then you are laying foundations for capital markets to work more efficiently. >> but you are putting independent within the corporate governance. you are mandating that they be independent and that they be

compensated. i mean, that is the type of corporate governance-- what i'm saying, 95% of the corporations never made a mistake or never performed in a risky manners that you are basically taking and you were saying to all those corporations, we are going to change the rules. >> as we have seen, it doesn't take that many types of excessive risks-- risk-taking to do a lot of damage that goes not only to the shareholders but to the economy as a whole. i think we believe that if we have, we advertise to shareholders in the public that compensation committees are independent and yet we know that if the company itself hires the compensation consultants, if that compensation consultant can also be taking other fees and being paid by the company, then you have a bit of false advertising so we think what we

are doing here, far from being introversive, is simply ensuring that the independence of compensation committees as advertised its independence in fact. >> i guess i am-- bouquet. >> the gentleman from california. >> thank you very much. i would like to thank our panel for being here today to help us wrestle with one of the most serious problems in the financial services community dealing with compensation and bonuses, etc.. there are some things that we have learned about actions that were taken that are very disturbing and i don't know that we have gotten any information to help us understand what went on in some of these actions. for example, i want to know what you have discovered, starting with mr. sperling, about the

authorization for $5 billion in bonuses to be given to merrill lynch employees at the time that the merger took place between bank of america and merrill lynch? i have read accounts in the paper and i have heard information that bank of america new, and signed this agreement, that these bonuses could take place. later i am told that the ceo said that he was made to sign an agreement, understanding that these bonuses were going to be given. normally these bonuses were given at the beginning of the year. they rushed them so that they would be given toward the end of the year, and prior to the signing of the agreement. what do you know about this? >> congresswoman, there is obviously been very contentious discussion as you know that is

gone out to the public between former secretary paulson, the chairman and the chairman of bank of america over what transpired during that transaction, which as you know, was months before i entered the obama administration. i would have to, i would need to go back and would be happy to do so to get what our administration's best understanding is of that, of that dispute but it is an ongoing dispute with the delete iran just a superb unengaged in it, so i don't have intimate knowledge of where that is right now, but i would be happy to get back to you. >> as we try and create public policy, around some of these issues, what would any of you suggest that we should include in legislation that would prevent this kind of action?@ @

our view is very much to try to have greater transparency on the practices, greater independence and we feel very much that these types of practices one brought to light, that the transparency is often decisive and so when people say for example say on pay is non-binding, i don't

think that is the way it works in fact. i think that it is very troubling for a company to face in-in those areas and that, if you want-- pheaa want to take the public rest. >> any other comments on this issue? >> so, madam congresswoman, one issue i would add to what jean has said is that it is important when, an organization has not performed well, that bonuses be adjusted for that. there-- one of the principles we think is very important and the federal reserve will incorporate in its guidance going forward is that the compensation should be risk sensitive. it should reward good performance but then when performance does not meet goals or when there are losses, then the compensation it has to be directed in the other-- >> he is the first one that

emerged with the risk assessment relative to the management of risk basically. he maintained from the beginning that those persons responsible for creating the risk would have to accept the responsibility for the failures, and so i think we are on that path for sure, but i just want to make sure that i understand when mergers are going up, buyouts are taking place, what the purchases are being forced to do by anybody. i want to understand that better and i will continue to try and pursue that. >> i think the chairman would say in the savon pay grill legislation in different proposals there's often a separate vote on the golden parachutes and exactly that merger transaction. >> the gentleman from texas.

>> thank you mr. chairman. mr. sperling, in your testimony you said that you over going to put the president's working group and provide an annual review for compensation practices of the government can monitor whether they are creating excess risk. how will that work? how will you determine compensation is actually creating access risks? >> i think the reason secretary geithner felt that it was good to put this on the agenda, and it's the same reason you hear mr. alvarez talking about it from the federal reserve's perspective that we have all learned painfully that compensation is closely related to the safety and sound obligation, not only the federal reserve but all of us have and i think we also are aware that one also has to be worried about fighting yesterday's war.

new practices, the new trends can emerge and they think to ask the major supervisors in the u.s. government to take a yearly look for an annual review of what those trends are could be again, one more check against the type of excessive risk-taking that we have seen, which often can get a pass and exactly a bubble atmosphere, where again everybody looks smart because assets are all going up year after year. these are exactly the times when you need to have more risk management in place and perhaps that the federal level as well. one of the things secretary geithner did was actually to invite many of the major organizations, nonprofits, business groups to be part of that process so we are reviewing not just what may be going wrong but also best practices and one of the positive things that is coming out of this discussion and we heard in the expert meeting that we did, which was a

very wide group that went from nails minow to the business roundtable, was there was enormous optimism that there could be an emerging sense of best practice if this discussion is rigorous enough and if there is enough of a spotlight shined on it. >> one of the things in your testimony you said early on, you think one of the major causes of the financial crisis we are in today was based on compensation. the problem i have come a going down this compensation road is where in the chain was the compensation inappropriate for the risk being taken? was it the younger originator of that loan or was it the person that the financial institution that was packaging that loan or was that the securities company that was securitizing yet or was that the investment company that was fine those loans? were in that process was the person being overcompensated in the risk and compensation out of

proportion? >> i think it is less kind of how much but it is more, what you don't want whether it is the person originating the sub-prime mortgage or the executive, is you don't want to encourage compensation practices were one gets to internalize the gain short-term and externalize to others the potential risk and harmed the on the road. so, for example, if they sub-prime mortgage originator, if part of their compensation might be based on how the mortgages were being paid, that would be a way that you would ask that person to think not just about how much volume that i can push this year but whether or not you give them an incentive or their unit and incentive to consider how it is going to perform. some firms are not doing bonus thanks and let they are saying basically is, if everybody knew

there bonus was going to be held for a few years before they got all of it, than that people said we are doing excessively risky things here, there would be a lot greater incentive for people to be self checks in their own businesses because they would see their compensation would be reduced. across this system, too many people could internalize private gains by the volume of what they were doing regardless of its quality or the risks it was externalizing to their firm, the shareholders or as we have painfully learned the economy at large. >> a quick question for the free panelist. if you gave me $1,000 in two years i had made that into a million dollars which be fair for me to get $10,000 fee for doing that? yes or no? >> it depends. >> mr. alvarez would it be fair for me to get $10,000?

>> i couldn't say. >> i couldn't say. >> the answer here is you all are going to accept compensations for companies it you don't know what inadequate compensation for a return is and that is the problem. >> just to reassure people, the house is in recess so we are not going to have to disrupt this. the gentleman from new york. >> thank you mr. chairman and i thank all of the panelist. i would like to know from my colleagues that i have worked closely with kenneth feinberg during the recovery for 9/11 for new york city. he took on an incredibly difficult task, determining what the compensation would be for families that have lost their loved ones. it was a very difficult task and he won applause from everyone. he did a magnificent job with a very difficult, mirky, confusing

problem, so i complement the treasury department on their selection and i wish him great success and that he will be as successful as he was with the 9/11 compensation fund. my question really to treasury is how did you determine the seven companies that are going to have their compensation determined or guidelines by mr. feinberg? some people have said if there was 40% ownership by the taxpayer, was that the standard? what was the standard that determined who the seven companies were? >> in the regulation itself, actually mentions the specific names of the programs that they are under but i think your question more goes to what is the logic and rational. i think our feeling is that some of the things we have done, some of the facilities that were set up or set up to be generally accessible to companies, financial institutions at large

and they are often set up because we think that there is a positive public purpose in them participating. we think, whether a community bank, if community banks wanted to not have more capital, if they wanted to do less loans we believe it is in the interest of recovery to have stronger capitalization of banks and the stronger lending profile, so those are generally excessive programs. where a company comes to the u.s. government and the u.s. taxpayer and requires exceptional assistance that is not being offered to their peers because they face an enormous threat to their fundamental financial stability, that we find to have such an impact on the economy as a whole that we have to intervene. that is an exceptional case and that gives, that requires of us that the treasury department to have a stronger fiduciary duty to the united states taxpayer.

so, even though the legislation, congress has spoken, there is a lot in the land of their recovery act, we felt that the law as stated this not have a limit on salaries and we felt that coming in the case of companies to receive such exceptional taxpayer assistance, that we had to have a stronger fiduciary duty and we spent a lot of time trying to think what was the best way to do that. and the end, we felt that if we could find somebody of the judgment and stature of ken feinberg who could look across these companies, look at what, looking at a set of principles on a risk and performance wabasso what is likely to lead taxpayers to get return on their dollar, that at that extra level of protection for the taxpayer was necessary and important there in the way it would not be as simply a community bank in your district chose to participate in the capitol

purchase program, partly because their government thinks it is a good thing for them to have stronger capital and be in a stronger position to lend. >> well, i think every bun understand if you take taxpayer money you are subject to a higher form of oversight and accountability, but the question basically that i am hearing from my constituents is what was the standard? it would be helpful if it-- if it was more clear. is it 40, 50, 60, 80% of taxpayer dollars? if it was one that we could understand it connected to that question what would trigger the eighth company to come into the fold? i certainly don't think it will be totally at the discretion of one individual. it should be some form of public standard that people can understand and hopefully support. so, my second question is, what would trigger say in a company

to be under the same type of supervision as the seven companies named in the legislation? i will go back to the legislation but i am still unclear as to what was the standard and i think it would be helpful if the standard was clear to the public and to members of congress on how these particular companies were selected. i would think the easiest form is what is the degree of public funding that has gone into it? >> the gentlelady's time has expired. it is their brief answer? >> the reason why i feel the exceptional assistance is the right standard as opposed to ownership is let's say we decided that we did not want to live for up gm and put them in the situation of having extremely high debt, which is the problem they had so we get our assistance through equities that had we done so through a very exceptional lending on an attractive term, that would not have given us a certain

ownership perspective, but he would have looked and thought, they are receiving exceptional taxpayer assistance that their peers are not, and by being in that situation, that brings on a higher fiduciary duty and i think the general principle is the right principal. >> i would advise members, we have to be conscious of the time and questions with no time left aren't good answers. >> thank you mr. chairman. i will tell you i have an abiding concern about the federal government versus what the states are doing. and, in general in terms of bailout situations and whether it is really working or not. but my first question to you is, have any of you or your different agencies studied the the shareholders are, and i say that knowing that in many corporations, wealthy, private individuals,