-- >> let me go to the second question. jo if i chose my wourds pooferly. on the fifth point, which is the one you mentioned. it was an >> those two thungses quickly. >> again, we have given the fcc league authority.

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 completely uncontrolled bankruptcy, and in terms of they have viva, it is going to require very painful sacrifice from retirees, retirees who did nothing wrong, were not part of contributing to this financial crisis and i do believe there was careful, shared sacrifice in that arrangement. >> thank you mr. chairman. >> thank you, commenting on the less gentleman's comments i'm

not sure that the bondholders were hurt. waive rathore huge infusion of taxpayer money helped all the old stakeholders. i think we were more generous with the workers then we were with the bondholders but if anybody is not being treated well and it is the taxpayers. i want to recognize kathleen connell it was for eight years comptroller of the state of california. i notice that quite a number have railed against government control pay. i should point out this is companies that have taken and 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 down. how did the compensation laws that we have no, if they do, how did they affect guess between safe nco of the company and members of the compensation board? >> thank you. the sec's rules of quite a bit of requirement with regard to disclosure about conflicts between members of the compensation committee and other

executives of the company. in fact, it is a new york stock exchange, a listing requirement that today members have to be independent and those rules are quite extensive. i think what you are hearing from my colleagues on the recommendations that were made yesterday is to increase the dependence beyond what they currently are today to restrict also the connections between compensation committee members and the board so i think we look at heightened compensation but there is and pizner requirements a day and there is quite a bit disclosure required under the sec rules. >> have you ever found that to be violated in the history of the sec or the law? >> unfortunately i don't have that information, to be able to give you a thoughtful answer. i would be happy to look into that. certainly the commission takes its authority to enforce the rules with regard to violations of the did the disclosure rules or other rules very seriously but i would be happy to give

back to you with information on that. ..

it won't be left as the only one doing it, and that will improve the practices of everyone. >> do you think it would make any sense just to impute culpability to stockholders and their losses if you act poorly like this, that opening the exposure to liability could be just as effective? >> shareholders already do share when there is excessive bonuses paid to executives that's cost or worn by shareholders and their success of risks -- >> when was the last time that you were aware that was utilized? >> well, the shareholders -- it's reflected in the decreasing shareholding. >> i & the pherae but most stockholders that i know, and they are small investors, not a big investors, they think these

que ljungqvist bonuses are a necessary evil and there is nothing they can do about them and it's just as bad one place as another when everybody is misbehaving they are not went find anything better at the bottom line if everybody is misbehaving to the same extent and nobody's done anything about it and quite frankly i doubt you are going to be able to regulate anybody into doing that. i think just holding them more accountable individually and personally liable and accountable would just make a little bit more sense. mr. sperling, i would like your 2 cents worth. >> i think the proposals we are talking about would be effective. i agree with mr. alvarez is a bit about -- and you see this the way the consultant works -- it is sply -- it's not -- there is less is this fundamentally sound, fundamentally good for the shareholder and for how does it compare to the practices of your peers. and so you do get a bit of a collective action where people

say our five competitors to this and that becomes the beginning and end of the discussion, and i think that in power in compensation committees but also to say on page bringing this to light does have a powerful deterrent on say in the u.k. even from the study business school it was a positive affect on the tour in high payouts to those that perform pour early. >> we have another subcommittee hearing, so we will take a break and we'll have to votes so won't be gone that long. and will take your questions and then break for the vote. >> many years ago my husband worked in wall street. he started out in wall street i believe when he was 17 and he worked his way up and worked for a large financial service company.

he was in compliance and had the whole northeast corridor to good of offices to make sure they were complying with the sec rules but also the company rules and he always found it amazing because he never announced when he was going to be there he would go into an office and a lot of them followed all the rules and regulations, no problems but there were certain offices that didn't follow the rules and regulations and he would write them up and another surprise visit back to see if they cleaned everything up. they did not if that is when they got in trouble with the company and these are usually large offices that produced a lot of money for that particular location and i think that when we talk about why we're here today and we are doing i think people have forgotten the are

here because the companies did what they did and are trying to get a reputation back. the banks to get the reputation back. the financial services have to get the reputation back and people do not trust them yet and it is our responsibility as the government to try to protect our constituents. they've lost trillions of dollars. people are hurting and still hurting. we are happy to see things are starting to go forward. i believe because of the government did that the markets are starting to stabilize and we have still got a long way to go on housing and it's because of what we did do. with that being said and i have to agree with my colleague when she mentioned kenneth feinberg, he's great. i worked with him with a lot of my constituents that lost somebody on 9/11 and i think he was a great choice, but i go back to one of the