sense of who the shareholders are in corporations in america today that had been well analyzed? >> i will let my colleague from the fcc answer that. the only thing i would just say that goes to your point which is we do have to be very careful in the one size fits all metrics for rewarding behavior and i think some of the experts you are going to hear in the next panel are very persuasive in

making that case, that simply using stock, while often successful, is not foolproof and i think it is something we should all, us included, should be studied carefully and listening to the type of people you have coming up on the next panel. >> thank you congressman. i appreciate the question. i don't have i-- i don't know i have a full answer for you and i would be happy to work with you to get that but the issue you bring up is if we considered and most of rulemaking matters i have been involved then. you know, interest of shareholders long term, short-term, percentage ownership, small companies versus large companies, many of the issues we think about when adopting rules and certainly something we see common when we issue rules and we have been thinking about economic interests, voting interest going forward so i am aware of those issues and you are aware of those issues.

i don't know if i have a full answer that i can give the response to. i can tell you the makeup of the american shareholders but those particular interest rates with the commission and something we think long and hard about before we doctorals. >> i think it is important and we need to keep an eye on it. my next question is general in this back to what is the the the beginning and that is, what should we in the federal government be doing courses with the states are doing? most corporations in this country are the state level. states are beginning to make changes not dissimilar from what you were saying and as i have indicated i think there are some concerns about, that some of the compensation factors but i am not sure the federal government should be stepping in and doing this in my concern is if we do this week expected to do whatever the next is? are we better off discerning exactly what the problem is and allow the states to make whatever decisions are that would be corrected in this case force is doing it that the

federal government level? >> i am not sure that the commission itself has weighed in on that particular issue but if you go back and look to the provisions adopted in the sarbanes-oxley, the provisions of the rule, we have gone to great lengths to maintain that balance between the interest of the sec, the authority congress has given to the sec to protect investors versus the important state law, writes that shareholders have. i think you'll see that in many of the rulemakings the commission has gone through. there is a balance. is a policy question that i am sure you need to answer which is why do you are asking the question. i do think it is an important balance. i think the state and federal rights are recognized throughout the rules the commission has and the authority congress is given to the commission. >> i would like to ask another question but i probably don't have time. i understand what your saying that i think we need to be very careful about how encroaching we

are being with respect to dictating in terms of corporate structures and corporate methodologies involving the federal government. i think it can be putting the foot in the door for what could happen in the future and i think we need to be very cautious about that. if i had time i was going to ask you about the structures on the timelines that we talked about it the beginning as to what those structures are, but i may submit that in writing because there red light is on and i have to yield back the balance of my time. >> i thank the gentleman sensitivity to the time and recognize the gentleman from north carolina for five minutes. >> thank you mr. chairman and i apologize to the witnesses for not being able to be here for their testimony but i have been reviewing it. and i want to take these semantic way in which mr. sperling address these issues differently, and ask a

broader question. dawfur's three principals that you outlined in your testimony mr. sperling, compensation plans and should properly measure and reward performance. compensation should be structured in line with the time horizon of risk. compensation practices should be aligned with sound risk management are all kind of general principles but then in the fourth and fifth-- you may not even be aware of this, the fourth and fifth principles, you shifted to a different phraseology. you say, we should reexamine whether golden parachutes in supplemental retirement packages align the interests of executives and shareholders and number five, we should promote transparency and accountability in setting compensation. my underlying question is, who

is the we first of all, and the extent to which authority already exists either at the sec or the fed to do some of this under existing statutes, or whether there are specific things that this committee and congress must do to change the law to address these issues. >> thank you. perhaps in the fourth i did not use-- our words well because i think they are actually different. i think on the issue of golden parachutes and supplemental retirement packages we were not coming with a particular legislative or even regulatory proposal. we really were in a sense trying to shine a spotlight on the

practice that we think-- >> do we in that case being the treasury? >> we are trying to suggest that based on our refute, this is a practice that there are practices on the supplemental retirement accounts, excessive retirement accounts for executives in golden parachutes, they shareholders and management should reexamine and there may be times they are appropriate but there seems to be increasing evidence that they have become more-- >> let me go to a second question. >> so, i say perhaps i chose my words poorly if that imply that we the treasury department have a specific proposal. on the fifth point, which is one dimension, we were coming to the table with a specific proposal and it was a proposal to essentially give the sec the authority they need to do two things that the treasury department and the sec both feel

are in the interest of a sounder-- >> those two things quickly. >> legislation, which again. we are giving the sec authority to do and giving the sec clear legal authority to strengthen the independence of compensation committees and the way that after an ron, congress gave the sec the authority to strengthen the audit committees. >> well, of i thought the sec already have this authority. mr. brahimi, and maybe it's just not exercising it, do you need more authority or is it just that the sec that we have had is not exercising the authority that they already have? >> no congressman i don't believe we have the authority to have a say on pledget-- say on pay proposals. the chairman of the sec is on

board supporting the say on pay legislation. >> if the sec does not have it, do the regulators have it? or are we talking about all public companies that don't have regulators? what about with banks, regulated banks? with the regulators already have the authority to say you have got to have a more aggressive compensation committee on your board? would they have the authority already to say, you've got to give your shareholders a right to have a say on pay? >> no on say on pay. we would not have the authority to require those kinds of disclosures. that is the safety and soundness related. we may be able to do some actions there but i'm not sure we would be able to get as far as the treasury department would like. >> thank you mr. chairman. >> safety and soundness is used

more often to in folks nondisclosure then disclosure. the gentleman from texas, mr. inslee. >> mr. sperling i tried to listen carefully to your testimony and in listening to what i must admit i find myself in agreement with most if not all of the principles that you lay out, compensation plans should measure rapport performance, structured in alignment with time horizons and risk should be allowed was signed-- risk management and the rest. for most of my life i have signed the back of the paycheck but there was a time i actually sign the front of a paycheck. there was a time i served on the compensation committee of the new york stock exchange company. and not unlike the gentleman from california in his opening statement, i thought i worked very hard to try to insure that these principles were put into place. i remember and unhappy ceo when

i was part of committee informing him he would not be getting the pay package compensation structure that he had desired. i guess my question for you is, since i have found this challenging and i was in the private sector for 12 years and have been a member of congress for six and a half. when i came to congress i did not have any kind of epiphany that now i know what the perfect compensation structure is. i go back to what the gentleman from california said, and why can you do better? >> i don't think there's anything we are proposing that suggests we could. i think what would where perhaps suggesting on the compensation committee is that when you were in that position, if you have the authority to hire your own compensation consultant, if there was not an ability for the compensation consultant to have a conflict of interest because they were being paid by the ceo of in some other measure, that

that would strengthen your hand. you seem to have been able to in your situation strike that type of independence and i compliment you on that, but i can say many people find on compensation committee that if the company itself is hiring the council and the consultant that it is very difficult and in fact there's a study that shows ceo pay does end up being higher when you use a compensation consultant that has conflicts of interest. >> i appreciate your approach in that regard and it will be an opening question in my own mind whether or not there are ways to strengthen the hand or the powers commensurate with responsibilities of the comp committees the public companies. i have an open mind about that. i can tell you from my experience on this committee though that there been many witnesses from private enterprise sitting at the table

who have received strong suggestions from this committee that this is a way that you might want to do something because if you don't do something we will do it for you, so i am somewhat fearful that once we go down this road we may go way beyond strengthening the hand of compensation committees. also mr. sperling on page 4 of your testimony, you state that "when workers who are losing their jobs cvid top executives walked away with huge severance is it creates the understandable impression that there is a double standard." i agree with that impression. let me ask you, since the executive comp issue has first arisen in terms of t.a.r.p. i want to ask you a t.a.r.p. related question. the administration put forth a reorganization plan ford gm. under that plan, gm bondholders, many of them are middle income

americans including blue-collar workers, tradesmen who invested $100, thousand dollars in gm bonds for their 401(k)'s for their retirement. the gm bondholders apparently and the administration plan get 10% of the company for $27 million in claims warrants for an additional 15%. the united autoworkers get 17.5% of the company for less in claims, 20 billion, and 10 billion in cash, 6.5 billion in preferred stock, 2.5 billion i.o.u. and warrants for an additional 2.5% of the company. with that not create an impression of a double standard? >> i really don't believe so. i really believe that the bondholders represented themselves very well. i think they were better off had they allowed for a cogp&eá@

are holding our t.a.r.p. money.

i want to join the chairman is in welcoming republicans when they reject virtually every bush administration economic policy in the last seven months of its the administration but it think it is that all time for democrats to reject with the same in cents a the virtually all of those policies. we are told that only a few t.a.r.p. recipients have received extraordinare help and only this you should phase real limits on executive compensation. i would say that t.a.r.p. is that an extraordinary departure from free enterprise and that even those who only got one infusion of say $25 billion of capital should be viewed as getting extraordinary help. i have one question for the record because i would like all three of you to answer and it is way too complicated to do so early. that is i want you to imagine how we would design and executive compensation system for the derivatives unit of aig

or some other derivatives unit inside of a company. if you just said we will give them restricted stock and restrictive for a few years they might take extraordinary risk so the unit looked extraordinarily profitable, get an extraordinary amount of aig restricted stock. they would have believed that aig would have been a solid company the matter what their unit did. i don't think anybody in that unit or in this country realize that that's unit could bring down that enormous company. likewise, keep in mind at least for this example, assume that this unit might show profits on, for accounting purposes for five or ten years in a row before it imploded and now try to figure out what kind of executive compensation system would reward the people for taking the right kind of risk but with actually penalize them for taking the wrong kinds of risks.

now, for a question for our representatives from the sec, there were elections in venezuela to control the government of venezuela. our state department criticized hugo chavez for using the resources of the government to affect the outcome of the elections for representatives to control the government. so, what can you do to propose to congress are to your own board for regulatory changes, rules that would prevent corporate management from using the resources of the company to unduly influence the outcome of the election, without giving similar resources to the other side? what would you do to say that certain challengers were supposed to get resources? and, what has dscc done to make sure that the challengers have equals space in the proxy statement which is the one document you to control? >> thank you.

that effect issue was the point that the commission took up on may 20 at the end as you may know this is the third attempt the commission has made to give shareholders who have a state law right to nominate directors the ability to have those nominees included within the company's proxy material, so the issue about disclosure and the ability to provide disclosure about their nominees is included and that rule proposal is up on the commission's web site as of last like. >> i would hope he would propose legislation that would go far beyond the proxy statement. what is needed is equal amounts of, in some cases millions of dollars to call shareholders and tried to get their proxy's and that needs to be equal. i guess my time has expired. >> thank you mr. garrett. >> before i go to my questions, to go back to the opening of the meeting were the chairman was talking about history and how history is relevant. indeed it is. the revisionist history is not

relevant. yes there were some republicans on this side of the aisle just the repudiating what the passive administration did with a lot of the bailouts. unfortunately the chairman and others were not repudiating it when it was going to the house. he remember the chairman as some say carried the water for the passive administration to make sure that legislation was not only engaged and major the t.a.r.p. legislation actually past and also we must remember history tells us that this the administration has basically adopted the, line and sinker the passive administrations of the bailout philosophy so yes there are a number on the side of the aisle that repeated the in the past then there's one i see over there they joined with us and the fight against the tar bailouts and all the string of bailouts that followed, so let's remember what history was. i also see we have the counter to the secretary of the treasury with us here today. remember mr. geiger at that time

was with the new york fed and at that time the new york fed, he was considered the architect of the bailout of the ig bailout and this administration adopted mr. geithner as their treasury secretary so i think there is the pity that this adminstration is continuing on in the mold and continues with the bailout and that is why a number of us thought it was wrong then and continue to fight now with our legislation and what we will rollout later on. with the history not clarified, mr. alvarez i see in your testimony you say employees expose a firm to see that the risk and importantly improperly designed compensation programs may inside a wide range of employee behavior. you also say we should adjust compensation so employees bear some of the risk associated with their activities and employees looks likely to take an important risk incentive payments are reduced or limited. i agree. how does that occur and the fed right now with the activities

the employees take that have their risk not only on themselves the the entire economy? or they can do anything they want without any risk? >> there is no one at the fed that can do anything they want without taking risks. >> as far as their compensation. >> no, no, no as far as their actions as well. so, there is a performance, at the federal reserve there is a tie between performance and pay. we are of braded on their performance and we all have adjustments to were paid based on our performance. we are not paid with bonuses in the way the industry is we are talking about here today though. >> for all the panel, looking at their proposals coming to this administration that the chairman is talking about, someone suggests that the proposal would have the higher costs for businesses to operate.

most would agree with that. some argue larger corporations could probably bear that cost. others argue that that may be the case but smaller firms would have the difficulty dealing with those pretty significant additional expenses. does anyone have a comment on how smaller firms would have to deal with these costs to the operation? >> so i would say smaller firms actually do a better job of aligning risk and reward than the larger firms do. in part because typically in a smaller firm this eeo, the cfo is there it-- if there is one knows the employees, knows the risks that are coming on to the balance sheet, knows what the employees are doing and so is able to adjust the compensation practices. >> but if we set up additional requirements, if we set up additional requirements and what have you as far as-- as far as other requirements of laying out there, does that add to the cost

of them doing business and will they be able to observe that? >> i will defer to the other saunders but the kind of approach the federal reserve is-- >> maybe i will turn to mr. sperling on the administrator of proposal. >> the two proposals that secretary geithner put forward, the say on pay and the independent calm committees, i do not believe what have a significant cost. it would obviously apply to public companies. hits it does not mandate that there is-- it does not put a mandate. it says that if they come committee, an independent comp committee is going to hire a consultant or council that that committee needs to have the authority and funding to do their job without conflicts of interest. so, i feel the things we have put forward right now would be affecting public companies, but i share your view that one

always hess to do an analysis of what the differential impact would be. >> thank you very much. mr. moore. >> thank you madam chair. before we learned the $165 million in aig bonuses in march we also learned from new york's comptroller that wall street executives were paid $18.4 billion in bonuses last year. i was troubled by this is especially during a national emergency when the federal government is providing billions of dollars of taxpayers' funds to stabilize the financial sector. under darmon circumstances i don't believe and i think most of the american people don't believe that we should, congress should be involved in any way in setting executive compensation or compensation for board of directors and shareholders. we should not be setting those salaries. but, we are not a normal circumstances and that is why i filed h.r. 857, which for tire

percipience only would that limited the annual executive compensation to the same level of compensation the president gets paid, $400,000. starting with mr. sperling i guess i want to ask you come cheaply compensation practices can pose a systemic risk or jeopardize a firm safety and soundness? tajik congress guard agents risks to the financial system without stifling reasonable compensation packages? >> i think we have learned the hard way that they can contribute and it has been part of the discussion that we have had today. and i do want to say that we often do mention or use the examples of the extreme cases, or where people were truly bad actors but a lot of i think the danger comes from building systems and where even good people do not, are not given the right focus. we talked before on dole practice from the origination of

sub-prime mortgages to their packaging, to their sales. you almost have a chain of financial transactions, where you are paid by fees by the volume of what you did, and then you either externalize it to the firm or you kind of moved on to the next person and of course what happens is that when you are in kind of ed bubble or asset bubble situation, the people who are being cautionary start looking like they are overly risk-averse. the people who are a bit reckless would like they are wise and smart and making good money. that is exactly what you have to really believe-- accompany us to believe in risk-management and it has to be something they do throughout the system and they have to empower the person as i said, even when the going is getting good. why was that in firms throughout the financial industry there was

so little effectiveness of risk-management when there were no shortage of people writing, that there was a potential housing bubble. perhaps people didn't realize how-- the death of what we would go through but there was a problem so i do think that companies have to believe and strong risk management and have to empower their risk managers have the stature in independence to stand up even in good times and say yes this practice has worked for the last few years but we may look of the underlying value of what is happening we think we are creating risk in the out-years for our company, our shareholders and the economy as a whole. >> thank you mr. sperling. mr. alvarez, any comments? >> the only thing i would get to that is the industry realizes there was systemic risk and risk to the health of the firms to the compensation packages of the past. if you recall 15 or 20 years ago there was quite an effort to just get paid tied to

performance as a beginning spot, so the methods that were used to tie pay to performance have shown in this crisis to have flaws to it. i think everyone is recognizing that so it is an opportunity, we have an opportunity now to make some strides to improve the health of the system and firms individually. >> thank you and i think my time is up to the so i yield back. >> the gentleman from florida. >> thank you mr. chairman. i am still trying to figure out what would make some of the compensation boards or committees recommend the incredibly high compensation that they did, when it was clear the ship was on the rocks and it was going@@@@ rbrb