regulations with no problems, but there were some officers that could not follow those rules and regulations and he would write them up. and then make another surprise visit back to see if they cleaned everything up. and they did not. ..

>> we are happy to see that things are starting to go forward. i did it because what the government did, that the markets are starting to stabilize. we still have a long way to go on housing. but it's because what we did do. with that being said, and i have to say also to my colleague when she mentioned kenneth feinberg, he's great. i work with him. i think it was a great choice. but i go back to one of the articles, by the way that was another thing in the article. already, this is wall street today. already many in wall street are beginning to bollettieri change their pay practices though it remains to be seen how long. that's another reason why we are doing what we are doing today, and hopefully for the future. but my question to you would be, could you expand on what is considered exceptional

assistance? i actually don't understand that part. >> the easiest way to describe would be that in the previous administration and they set up the capital purchase program. and this was expanded to all banks, so even smaller banks can command. the idea was to try to give more banks of the capital so that they were in a stronger position to land untranslate land. we don't collectively if there was proper capitalization and the banking system there would be more lending. and that would be good for the economy. an individual bank might say, you know what, we're just going to weather this storm by not many. were not going to make much money but we will get through it. but for us we know that 5000 bags all do that at the same time, that means there is going to be less small business lending and there's going to be less growth and this recession will last longer. so that's a generally accessible

program. and the people who come to it don't necessarily become because the week they come because we have a policy goal of wanting banks have more capital. compare that to perhaps citigroup were they required government assistance for their fundamental financial stability. and because of their importance to the overall financial stability, the economy, because our desire to not let something like lehman brothers again happen, we make an exceptional effort. we make an exceptional assistance that they get. that is not available to their peers, and it's not based on a general goal. it is based on an exceptional intervention to assist them decently in their fundamental financial stability. that is a very different situation. and while i could give you, and i think that principle is one people understand that i think they understand there is something different about aig and citigroup ngm vendor

community bank that takes more capital and the capital purchase program. i want to make clear the law of the land that was passed and recovery act applies to everyone. so the restrictions on bonuses. we added provisions on larger expenditure on say on pay, on having to write in a narrative way would you risk analysis is. but we were not as interested in those situations because many of those banks are community banks in your district. where you are giving taxpayer dollars to a company that would have gone into bankruptcy if they were not systemically significant, we feel a higher obligation and that really is in many ways the fundamental. >> my husband actually believe nobody should get bonuses, just get a good paycheck. >> we are going to return with this panel, and i'm going to call on the democratic side only those neighbors who were here and did not get you to answer questions. new members will get to questions under question a second male. the five members will be called

on to finish his panel and we will then get to the next panel, if one or two republican show up we will do that. we will be gone for not more than 25 minutes. there are only two votes. most of the time it is gone on one of them would be back as soon as we can. i thank the panel for waiting. >> thank you. thank you, mr. chairman. >> i want to say two things at first because i think from our very as conversation during the first part of the hearing, just to make clear, we are all capitalists here.

we believe strong in the capitalistic system. and the reason this committee is moving and exploring this issue is because we care about the capitalistic system. and the capitalistic system is not manifested just with ceos. it's not structured to take care of them first. the capitalistic system is geared with public interest. it's geared with shareholder interest. what we are concerned with here, particularly in the financial sector, is the health of our economy. at the heart of the health of our economy. the heart of it is basically our financial service industry. and so what we have here in dealing with this issue of compensation and the role it

plays in systemic risk is that there is some valve clogging going on. and we need to examine this so that his heart, the heart of our system, the financial system, does not endanger itself with a heart attack. clog arteries bring that. and we do have a clogged artery here. it's clear that excessive compensation has played some degree, some contributing factor to our financial situation. and i think what we are trying to do here, is on two levels. one, we have to respond to companies like aig and others that come and ask for the taxpayers money to help them. we've got to make sure we are good stewards of the taxpayer dollar, to make sure that the compensation is in line. and it's clear, anybody with any ounce of care about the capitalistic system, realize

that giving of $168 million in bonuses in compensation, of taxpayers money, to a failing company, asking for a bailout, was excessive. but what it did, it opened us up to a realization of the perhaps this compensation issue, this heavily imbalanced structure between bonuses and salaries. certainly had some risk involved. excessive compensation packages were indeed a contributing factor because incentives for sure under short-term gains overwhelms the checks and balances that were meant to mitigate against the risk of excessive leverage. so the question is how can we better align our compensation packages with sound management risk that properly measure reward performance.

sort of like scott burroughs here with some of these ceos would have gone into deals regardless of performance. paying some of these ceos as if they were 350-point hitters hitting 300 home runs when they are point to 20 hitters, no performance. so i think that what is wrong with having shareholders to be able to have a say in these packages. now, we have an excellently run company in my state of georgia. aflac. that has done this. with great success. shareholders see that their leaders, the people who are running the companies, they have the best talents, but they certainly want to make sure they perform. so we have excellent examples here of shareholders who are

taking part of that but i wanted to make sure that was clear. before mike time runs out, just a comment from each of you, how can we better align our compensation packages with sound management so that they properly measure pay for performance? and what is wrong with having shareholders have a say, not the government, not us. but the people who own the company. they ought to have a say what these people are being paid. particularly the hired guns with contracts. >> we have time for one answer. >> i truly think the say on pay is a situation of all upside, no downside. your empowering shareholders with the ability to have stronger oversight. you are forcing the company to think more seriously about what they do, how will it be

perceived and not just to go on automatic pilot doing practices that are not defensible just because they are peer group is doing it. all i would say, kind of quickly knowing we have time issues, is that i think that you need some type of -- some type of long term compensation or something that at least makes you internalize some of the risk that you are creating so you do not get entire industries or entire sets of employees who are all being paid by volume based on fees. and nobody in the process is looking at the underlying value or the long term risk. and i think the hard part for all of us is that we don't simply create a world where everybody is out saying, yes, pay for performance and we haven't really looked carefully whether the performance are now buzzing is subject, manipulation itself and i think that's going to be more complex, more

careful, mixes of metrics. sorry, mr. chairman. >> mr. chairman, i thank you for your leadership. it's been said that managers want to do things right, and leaders want to do the right thing. i think we are doing the right thing. and i would like to have just a moment of soliloquy because i would like to speak for a minute for people who are not here to speak for themselves. i want to speak for the autoworkers. i speak for them because today there seems to be some debate as to whether or not we should endeavor to make some adjustments with reference to executive compensation in terms of how it can promote excessive risk-taking. and the autoworkers have had their salaries maligned. they have been castigated for

making too much money. and it's unfortunate that there are those who would want to limit the salaries of autoworkers, but would take a firm stand against making any endeavor to look into whether or not excessive risk by way of salary has driven some of this at first, these adverse market conditions that we have. i have before me evidence of bill, hr 7321, which proposed requiring the employees of ford, gm and chrysler to receive the same compensation, or nearly the same, as nissan and volkswagen. it just seems to me that those who would sponsor this kind of legislation would find it in their hearts to see that we can look into the type of legislation that we are considering today.

i have evidence of hr five, which passed the house in 2005, which would have placed a cap on the percentage of damages that lawyers can receive that would have capped them at the 15% of any fees over $600,000. a lot of money. not nearly as much as what some others are making, however. and it just seems to me that if we can cap or try to cap, and cap the fees of lawyers who represent consumers, we can also look at lawyers who represent corporations. those who are not here today, i just believe they want is said, because there are people who are suffering, who have had their salaries cut, who worked in the auto industry. and these are people who are not

getting honors is that they could buy second or third homes or buy additional cars. what they lost was money for education, money to pay house notes, money to sustain themselves. and i find it quite frankly disenchanting to know that there are those who would want them to receive cuts and not want us to look at the compensation that these executives are receiving that can create excessive risk in the marketplace. so i thank you, mr. chairman, for giving me this moment to voice the concerns of those who are not here, the blue-collar workers and the lawyers who represent the consumers, who have gone to battle for them and made a difference in their lives and in the lives of people in this country by causing us to have products that are safe by virtue of knowing that there are

these lawyers who will take on these challenges and make sure that the consumer is protected. consumer protection is important. we had one of the best consumer protection systems in the world, and he did not cost the government 1 penny because we had lawyers who were willing to stand up for those who could not stand up and speak out for themselves, and it's very unfortunate that we choose to regulate these lawyers but we don't regulate -- or don't see the need to regulate lawyers who are creating excess of risk who work for corporations. i don't want to see anybody salary cut. i do want to see anybody salary regulated, but the american people understand that something wrong has happened. and they want to see us do something about it, and that takes leadership. we can't just manage this problem. we've got to show some leadership and make the necessary changes to eliminate

this excessive risk-taking that created much of the systemic problems that we have had to contend with. i yield back. thank you, mr. chairman. >> pajamas from colorado and the gentleman from missouri. missouri. >> thanks, mr. chair. is a couple, to my friends on the side of the aisle have expressed a lot of what i am feeling. even my friends on the other side of the aisle could be the greatest laissez-faire capitalist in the world have got to question when there is such a serious divide between management and ownership. i'll take qwest, which is a big company in colorado. quest, one of our ceos, he has now gotten himself in trouble, had $148 million. all right. now this is comparing apples and oranges but the governor of the state of colorado gets $90000. and most people make 50 to

$200,000 in colorado. how is it that an executive gets $148 million? how does that take him about. mr. sperling, can you gauge how does anybody approve that kind of salary for anybody? >> i don't know your specific, the specific case. but i will say one thing and again you have some excellent experts coming on, which is one of the things, you know, one of the things that concerns me is whether or not retirement golden parachute type of payments are somewhat promoted because they are less transparent. people do not know the walk away value of what a corporate -- a ceo may have until that moment. >> let me give you one that maybe you are firmly with or maybe other panelists.

because i appreciate, you know, giving some more teeth to the compensation committee, but i mean, there still is a divide between the owners of the company and the management. maybe the owners rein it in. that is allows a fair capitalism. let's take angela mazzella, countrywide and angel who has been involved in a lot of the troubles, potentially that we have today. his salary was $102 million. $102 million. are the owners of countrywide actually having to say in what he is making? i mean, if i'm the owner of the copy i'm going to want that in my pocket as a dividend. do you think your compensation committee approach really gives those owners the strength that they need to say no, that's too much? >> i think the case you just mention goes to the heart of the pay for performance. i think there has been nothing

that so promotes a sense of double standard that i mentioned. and i believe you are mentioning. than the extraordinary cases of huge sums for ceos who have failed. and the juxtaposition between workers losing their jobs, seeing pensions cut, because of the failed ceo receiving enormous amount of that, of sums as the lead, and having failed. i think is very destructive to the kind of public trust in our financial system. so i think that go to almost the heart of everything we're talking about. how do you ensure that there is actually pay for performance and i think part of that is shining a spotlight on whether people are just doing compensation based on what their peer group is, whether it's acceptable to have these kind of compensation packages that allow this when there's been no performance. and, you know, i'm hardened a little bit to see that i saw

that the copies that were just paying back their tarp without any push in the government, but i think because of this focus put out statements saying they're just going to do pay for performance. they are going to give most of the compensation in stock to be held for a long time, and they weren't having any golden parachutes. i think this goes to the heart of almost everything we're talking about. >> just one more question. when we say pay for performance, is that going to be tied to like the stock market likes because that's a problem in and of itself. >> you're absolutely right. former chief of staff was a first person who told me that when he was at wall street his boss used to always tell him never confused brain for a bull-market. >> exactly. and the idea that performance is simply stock price, i think it works both ways. it rewards amazing rewards for people that has nothing to do with their performance, just the overall economy is getting better. on the other hand i don't have a

problem with rewarding an executive who is doing an exceptional job in a terrible economic time. but you don't see that symmetry. the sense is that people get paid a lot when they fail. they get paid when they succeed, chairman frank was in the paper the other day saying heads you win, tails at least you don't lose on these packages. but i do think one of the key points is just time to stock does have its risk, and, you know, i know some experts we've talked to said be careful, don't make that a one size fits all because if i accumulate all of my funds in stock, i have huge stockholding, and allow to take it as soon as i retire, that could create, again, for a corporate ceo of strategy, strategies that are about raising their stock price as they leave. so it's helpful but it's not one size fits all. >> the gentleman from missouri. >> mr. chairman, i associate myself with comments of

mr. perlmutter, and i will forego any question and wait until the second banner or i will yield one of my college on the other side. >> that concludes this panel and we will call the next panel. thank you all very much. we will begin, we have already made our opening statements. with a return witness who we appreciate having before is. >> thank you, very much mr. chairman. this is i think my fifth or sixth time being before the committee but the first time you spelled my name wrong so i would appreciate if we could correct that in the record. >> yes, sir. , we will do that. we just want to differentiate you from the big fish will be discussing. >> okay. appreciate that. thank you very much. mr. chairman and members of the committee, i'm in the india bull and unprecedented position of agreeing with both sides, and with most of it, said in a here today. but i think there is a mistake

to say that we object to the government getting involved in compensation. the government is already deeply involved in compensation, often inadvertently and what of the things i want to talk about today is removing some of the inadvertent obstacles that we have two having optimal pay. the market and the government have both failed here. primary role of the government is to get out of the way of the market and remove obstacles to the kind of oversight that capitalism requires. bad thing is a risk factor and is very pleasing to the earlier panel talk about that. and that the fed will now look at it, but where are the other people who are supposed to be looking at risk in the market, the rating agencies, the security analyst, the liability insurers and the journalists. and it's also important to stop saying that the company pays the ceo this amount of money or that amount of money. exactly the boards of directors and we need to put the focus on there. in theory as we talked about with the last panel is the shareholders elect the board. but if you're going to give them

say on pay and some of these other rights that you're talking about, proxy access, you have to make sure to remove the obstacles that they are carrying it out. our reports show that shareholders fail tremendously, most of the time and that independence is as important on a shareholder size as it is on the board cited as i could have my testimony, which i'm not going to summarize because it's in the record, i felt a little bit like dickens. i was talking about the ghost of compensation, past, present and future, and i want to refocus on what's what on now. because i did disagree with a statement made by mr. alvarez about the fact that they have gotten the message. in fact, we see is that we have particular concerns about efforts to circumvent even the preliminary constraints already imposed. executives will always be more motivated and agile than regulators and legislators. with regard to pay structures, i support indexed options, with regards to board of directors it's very important that they

have the vulnerability to remind them who they represent, that they can be removed if they don't represent shareholders. and with shareholders i really want to focus on the collective choice problem, was called on by economist rational apathy and suggest possibly the appointment of independent voting fiduciary. finally the billions lost in the financial market meltdown are dwarfed by the loss of reputation and brand of american financial market. i am a passionatpassionate capless myself i hope that this committee will work to restore the credibility of our system of capitalism by removing obstacles to the role of the market in establishing optical conversation. i look forward to your questions. >> thank you. i apologize, but our administration at the last minute has raised some issues with the about some other things they should have raised before. i finally told them to forget about it. and show a little more consideration and i apologize. another return witness,.

>> mr. chairman, and distinguished members of the committee. one major factor that has induced excessive risk-taking is that firms reward executives for short-term gained. although the financial secretary has lost more of half of the stock market value during the last five years, executives are still able during this period to cash prior to the implosion large amounts of equity compensation and bonus. we were warned in his book titled pay without performance that was published five years ago. in following the crisis, this problem has now become widely recognized. to tidy compensation to performance, executives

shouldn't be allowed to cash out until several years of investing. similarly bonuses should not be cached right away, but should further be placed in an account for several years and adjusted downward if the company learned that the reasons for the bonus no longer hold up. in addition to the short-term problem, bank executives had a second and important source of incentives to take excessive risk. that does far has received little attention. the payoffs of bank executives were tied to highly leveraged bets on the value of banks capital. compensation arrangements tie to executives in the bank holding company or even to the various options on such shares. as a result executives were not exposed to the potential negative consequences that very

large losses could have for preferred shareholders and the government these gave executives incentives to give insufficient weight to the system, and therefore gave him incentives to take excessive risk. to address this distortion, the payoffs of bank executives could be tied not to the long term value of a bank's common shares, but to the long term value of a broader basket of securities which should include at least the bank's preferred shares and bonus. now let me turn to what the government should play. for financial firms, the government should avoid intervening in the substitute choices that firms make, but the government should see to it that shareholders have either, and as i testified before this committee two years