proposing today or you have proposed would have a deterrent -- >> mr. chairman, i think one good piece of information is the world is looking at this problem as well so britain has arctic and to consider, the swiss have proposed some principles similar to what we have discussed and as i mentioned the board has worked on an international panel with a stability board and so this is a global issue with a global set of solutions that the globe is coming to a consensus on. >> thank you, mr. baucus, max thank you, mr. chairman year earlier remarks i would say that whether we tax this on a bush and sort of pin the tail on the dock you're whether we pivot on

the elephant, it is now all our problems and is now, not then. and i just ask that we all work together to get us out of this, these bailouts and government-funded programs that we extricated herself from that end of the deficit spending that we have witnessed. we work together on that i hope. let me say this, gene, you and i have worked on several things and have a deep respect for you. i very much agree with you that one of the contributing factors to the excess risk taking that was central to the crisis was compensation and that was linked to short-term gains without any consideration of a long-term risk. and as you say, across the subprime mortgage business, brokers are compensated in ways

that place a high rating on volume without regard to whether the far worse had the ability to make those payments. that is pretty clear. i associate myself with all of those remarks and i also associate myself with the remarks you have made, the top executives often those golden parachutes want to lie with shareholders' interest. in fact, what you said it creates an impression and my a lot -- a lot of my constituents have this impression there is a double standard in which top executives are rewarded for failure at the same time that working families are forced to sacrifice. we have seen instances in a lot of cases where executives received these tremendous salaries as they went out the door on family corporations and at the same time most of the workers are being given pink slips. or their retirement benefits or health care was being cut back.

in having said that, you know, i take those as given. you say the goal of the administration now is to move compensation committee's finding independent and named to be independent in fact, and not only with committee members bitch really independent but they would be given authority to retain compensation consultants and legal counsel on long with the funding necessary to do so. this legislation was along with testimony from the sec to create standards for insuring the independence compensation consultants and shareholders with a confidence -- compensation committees receiving objective expert advice. in the that is i think with all your gentleman admit that is a major mandate by the government in the corporate government?

>> thank you, congressman and. i feel that this is just simply trying to ensure that the independence of compensation committees is as advertised which is independent and the reality is that i say this as a person who has been participating on a board of directors, if the ceo controls the compensation consultant, 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 and i think one of the things that you tried to do is not to intervene or micromanage but i think when you can have transparency and reduce conflicts of interest then you are laying the

foundations for capital markets to work more efficiently. >> adel you're putting independent people within the corporate government and mandating baby independent and that they be compensated. i mean, that is a type of corporate government -- i guess what i'm saying 95 percent of the corporations never made a mistake or never performed in a risky manner so you're basically taking, you know, you are saying to all those corporations we are going to change the rules. >> well, as we have seen, it doesn't take that many types of excessive risk-taking to do a lot of damage that goes not only to the shareholders but to the economy as a whole, but i think that we believe if we have a we advertise to shareholders and the public that compensation committees are independent, and yet we know that if the company

itself harris the compensation consultant, if that consultants can also be taking other fees and being paid by the company, then you have a bit of cold -- false advertising so i think what we're doing here far from being intrusive is simply ensuring that the independence of compensation committees as advertised as independent, in fact. >> you're time is up. >> the gentleman from california. >> i like to thank our panel for being here today to help us reso with one of the most serious problems in the financial-services kennedy 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 a 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 read accounts in the paper and i have heard information that bank of america new and sign 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 are going to be given. normally these bonuses were given at the beginning of a year. they rushed them so there would

be given toward the end of the. prior to the signing of the agreement. what do you know about this? >> congresswoman, this obviously has been a very contentious discussion as you know that has gone out to the public between former secretary paulson and the chairman and chairman of bank of america over what transpired in that transaction which as you now was months before i enter 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 dispute, but it is an ongoing dispute with i believe our own justice department engaged in it so i am not -- i don't have intimate knowledge of where that is right now. but i would be happy to get back to you. >> well, 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? >> well, one thing i would mention is that with the legislation that you have already passed, let's remember at that in this situation of a partnership we are going well beyond, but obviously the legislation you have passed would have limited those type of bonuses to one-third of overall salaries so in the case of somebody receiving t.a.r.p. at merrill lynch been a t.a.r.p. recipient at the time it would not have been permitted other the law but more generally and again our view is very much to try and have a greater transparency on the practices, greater independence and we feel

very much that these types of practices when brought to light that the transparency is often decisive. so when people say for example stay on pay is non-binding, i don't think that's the way it worked, in fact,. i think that is very troubling for a company to raise a negative vote in those areas and that you want to take that type of public risk. >> any other comments on this issue? >> so madam congresswoman, the one issue i would add to the gene has said it is it is important when an organization has not performed well that bonuses be adjusted for that. one of the principles that we think is very important and the federal reserve will incorporate in its guidance going for it is that the compensation should be risks sensitive. it should reward good

performance but then when performance doesn't meet goals or when there are losses, then the compensation has to be adjusted in the other direction. >> that is the barney frank law, he is the first that learned of the rest 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 failure is. and so i think we're on that path for sure, but i just want to make sure that i understand when mergers are going up, buyouts have taken place, the purchases are being forced to do by anybody. i want to understand that better and i'll continue to pursue that. >> i don't want to -- chairman. >> quickly. >> i think as the chairman was a on the pay legislation there is

often different proposals eight separate but on the golden parachutes and exactly that merger transfer -- transaction. in. >> the gentleman from texas. >> thank you mr. chairman. mr. sperling, in your testimony you said that you all were going to put the president's working group and provide an annual review for compensation practices of the government can monitor whether they are trading excess risk. how will that work? how will you determine compensation is actually creating excess risk? >> i think the reason secretary geithner felt it was good to put this on the agenda and the same reason you hear mr. alvarez talking about from the federal reserve perspective that we have all learned painfully the compensation is closely related to the safety and sound obligation that not only the

federal reserve but all of us have a and i think we also are aware that one also has to be worried about fighting yesterday's war. new practices, new trends can emerge and i 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 in which too often can get a pass in exactly a bubble atmosphere where again everybody looks mark 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 incense in companies but perhaps at the federal level as well and one of the things secretary geithner did was two actually invite many of the major organizations nonprofits, business groups, to be part of that process so that

we are reviewing and not just what may be going wrong but also best practices and i think one of the positive things coming at of this discussion when we heard an expert meeting we did which was a very wide group that went from a mr. minow if you have speaking today to the speaking table there was enormous optimism that there could be an emerging sense of best practice if discussion is rigorous enough and there is enough of a spotlight shines on them. >> you know, and 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 a with going down this compensation road is where in the chain was a the compensation inappropriate for the rest being taken was that the young originator of that loan or was it the person that is that the financial destitution that was packaging that loans or was it to the securities company that was

securitized a man or was of the investment company that was by those loans? i mean, we're in that process was the person being overcompensated and the risk in compensation out of proportion? >> i think it is less how much, but it is more can you -- what you don't want to whether it is person ever to hitting the subprime mortgage or the executive, is you don't want to encourage compensation practices were 1p to internalize and the gains short-term and externalize to others the potential risk of harm down the road, so for example of a subprime mortgage and originator is 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 now doing bonus banks and what they are saying basically is that everybody knew their bonus was going to be held for a few years before they got all of it, well then the people said we are doing some excessively risky things here there would be allowed greater incentive for people to be self check to in their own businesses because they would see their compensation would be reduced. across the system too many people could internalize private gains by the volume of what they were doing regardless of its quality or the risk it was externalizing to their firm, the shareholders or as we painfully learned that the economy at large. >> okay, i have a quick question for the panel yes or no -- if you give me a thousand dollars in the two years i had made that into a million dollars would it be fair for me to get $10,000

fee for doing that? yes are now? >> it depends. >> mr. alvarez, would it be fair for me to get $10,000? >> i could not say. >> i couldn't say cunaxa what the answer is you all are going to except compensations for companies that you do not know what an adequate compensation for a return is and that's the problem. >> 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 panelists. alan like to know from my colleagues and i have worked closely with kenneth feinberg and during the recovery for 9/11 for new york city. he took on an incredibly difficult task determining what the compensation would be for a 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 markey confusing problem so i compliment the treasury department on your selection and i wish i am the 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 guideline by mr. feinberg? some people have said if there was 40% ownership by the taxpayer was that the standard -- what was the standard that determine who the seven companies were? >> in the regulation itself actually mentions the specific names of the programs that they're under, but i think your question marcos to what's the logic and rationale and i think

our feeling is the sum of the things we have done, some of the facilities that were set up are said to be generally accessible to company's financial the institutions that large and they are often set up because we think that there is a positive a public purpose in them participating. we think whether a community bank, in community banks want to not have more capital that they wanted to do less loans, we believe that it is in the interest of recovery to have stronger capitalization of banks and stronger lending profile so those are generally accessible 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 -- requires of us at 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 of the land in the recovery act, we felt that the law as stated does not have a limit on salaries and we felt that in the case of companies who receive such exceptional taxpayer assistance that we have to have a stronger fiduciary duty and we spent a lot of time trying to think what was the best way to do that. in the and we felt that if we could find some of the judgment and stature of ken feinberg to look across these companies, look at a set of principles on a risk and performance but also on what is likely to leave taxpayers to get return on their dollar, that that extra level of

protection for the taxpayer was necessary and important bear in the way it would not be simply a community bank in the york district chose to participate in the capital 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 everyone understands that if you take taxpayer money you are subject to a higher form of the oversight and accountability, but the question basically that i am hearing from my constituents is a what was the standard? it would be helpful if it was more clear, is a 40, 50, 60, 80 percent of taxpayer dollars? it was a standard the public understand and connected to that question is what would trigger the eighth company to come into the fold? i certainly don't think it would be totally the discretion of one

individual. it is to be some form of public standard that people can understand and hopefully support. so my second question is, what would trigger a say in a company to be under the same type of supervision as the seven companies named in the legislation? and will go back to the legislation but i'm still unclear as to what was the standard and i think it would be helpful and the standard was clear to the public and two members of congress on how these particular companies were selected. i would think that the easiest form is what is the degree of public funding that has gone into -- >> the time has expired. is there a brief answer? >> well, the reason i feel the exceptional assistance is in the right standard as opposed to ownership is let's say we decided that we did not want to lever up gm and put them in the situation of having extremely high debt which was the problem i had so we gave our assistance

through equities but had we done so through very exceptional lending on attractive terms, that would not have given us a certain ownership perspective, but you 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 -- the general principle is the right principle. >> we have to cut and i would advise members we have to be conscious of the time and questions with no time left for her to get answered. the gentleman from delaware. >> thank you mr. chairman. i will tell you i have an abiding concern about what the federal government is doing versus what the states are doing. and in general when the public has been doing in terms of bailout situations and whether it is working or not. but my first question to you is, have any of you or your

different agencies studied who the shareholders are? and i say that that in many corporations wealthy private individuals, private firms, mutual-fund and others become the stockholders of record and sometimes very often in the voting stock holders and i am afraid that their interests may be absolutely no different than some of the so-called brady executives who are looking for immediate compensation. in other words, in there are trying to get in and out in a relatively brief time. are we really serving the public by making these changes or is that -- and i realize if you go to each corporation it would be different but is there a general sense of who the shareholders are in corporations in america today that has been well analyze? >> i will let my colleague from the sec the answer all, the only thing i would say that goes to

your point which is we do have to be very careful in a one size fits all metric 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. it's simply using stock while often successful is not foolproof and i think it is something we should all, us included, be stepping carefully and listening to the type of people you have coming up in the next panel. >> thank you. >> thank you and i appreciate the question and have the opportunity to answer. i don't know i have a complete fulsome answer. >> i wouldn't expect you to. >> and be happy to get that but it is one we have considered and that most of the rule making matters i've been involved in. a interest of shareholders long-term short-term percentage ownership, small companies versus large cap companies are all or many of the issues we think about when adopting rules.

it is certainly something greasy coming in rules and we have been thinking about economic interest and voting interest in going forward so i am aware of those issues, we think about those issues and i don't have a full answer to town of i can get a response can i tell you the makeup of the american shareholders, but those particular interests are definitely raised with the commission is something we think long and hard about. >> i think is important keep an eye on. my next question is sort of general and goes back to the beginning and that is what should we in the federal government be doing versus what the states are doing? most incorporations in this country at the state level, states are beginning to make some changes, not dissimilar to what you are saying and as i have indicated i think there are some concerns about the compensation factors but i am not sure that the federal government should be stepping in and doing this. my concern is are we going to

expect to take the next up or whenever it may be. are we better off discern exactly what the problem is and then allowing the states to make the decisions are that would be corrective in this case raises doing it at the federal government level? >> i am not sure that the commission itself was weighted on that particular issue, but i think if you go back and look at the provision adopted in the sarbanes oxley provisions for moles -- 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 forces the very important state law rights that all shareholders have. i think you'll see that in many of the rule making is the commission has gone through, there is a balance and is a policy question i'm sure you to answer which is why you're asking and i don't know i can tell you. it is an important balance of the state federal rights are recognized throughout the rules

the commission has and the authority that congress has given to the commission. >> out like to ask another question but don't have time. and there's damage to our san but we need to be very careful about the approaching we are being with respect to dictating in terms of corporate structures and corporate methodology is involving the federal government. i think it can be putting their 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 about the structures on the time lines and you talked about at the beginning as to what those are but i may submit that in writing because the red light is on i take back the balance of my time. >> i think the gentleman sensitivity to the time it and i recognize the gentleman from north carolina. >> thank you mr. chairman and i apologize to the witnesses for not being able to be here for their testimony, but have been reviewing into it.

and i want to take the semantic way in which mr. sperling and address these issues it differently and ask a broader question. the first three principles that you outlined in in your testimony, mr. sperling, compensation plans 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. and you say we should reexamine whether golden parachutes