taking, central to the crisis >> it was linked to short-term gains without any consideration of a long-term risk. s you say across the subprime mortgagemol business workers ar working in different ways. it's preet year clear. i associate myself all of those remarks. also top executives won't align with shares interest. itee yates the impression. we've seen instances in a lot of cases where executives

received he's trennoudyouse packages. 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? >> well, one thing i would mention is that with the legislation that you will have already passed, let's remember that some of in the situation of t.a.r.p. recipients and i know we are going well beyond, but obviously the legislation you have passed would have limited those types of bonuses to one-third overall salary, so in the case of some who are

receiving t.a.r.p. recipient had merrill been a t.a.r.p. recipient at that point, it would not be, it would not be, have been permitted under the law but more generally again, 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 performedell, 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 qsán@@@@@@ @ @ @ @ @m 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, private firms, mutual funds and others become the stockholders of record and sometimes very often the voting stock holders, and i'm afraid their interests may be absolutely no different than some of the so-called greve executives who were looking for immediate compensation. in other words they are trying to get in and out in a relatively brief period of time. are we really serving the public

by making these changes, and i realize the hugo through each corporation it would be different but is there a general 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 jo we were not coming with a particular proposal. we really were trying to try a spot light on a practice. >> the we being the residencery share holders should reexamine. it see