Page last updated at 19:27 GMT, Friday, 31 July 2009 20:27 UK

US votes to curb excess bonuses

Compensation for bank employees has become 'unmoored'

The US House of Representatives has voted in favour of legislation to stop banks paying bonuses that encourage excessive risk taking.

The vote came after a report suggested that Wall Street banks that were bailed out by the government gave executives bonuses regardless of performance.

The report, by the office of New York Attorney Andrew Cuomo, said there was "no clear rhyme or reason" for pay.

Top US banks paid out huge bonuses despite gaining taxpayer bail-outs.

The House bill will now go to the Senate where it could be passed into law.

"This is not the government taking over the corporate sector... It is a statement by the American people that it is time to straighten up the ship," said Democrat Melvin Watt.

But some members were less impressed.

The bill would "undermine confidence in corporate America" and amount to "a government takeover of the free enterprise system," said Republican Pete Sessions.

The legislation includes proposals to give shareholders non-binding votes on executive pay, and to impose rules on the independence of those who decide compensation packages.

Damming report

The Cuomo report - prepared over nine months - argues that some banks paid out larger bonuses than their profits, while simultaneously taking exceptional state emergency funds.

"Compensation for bank employees has become unmoored from the banks' financial performance," it said.

Ten banks were given money as part of the government's $700bn financial stimulus plan.

In 2008 Goldman Sachs paid $4.8bn in bonuses, representing more than twice its income. Similarly, Morgan Stanley awarded bonuses of $4.5bn while earning just $1.7bn.

All the while a painful global recession - partly caused by bankers' excess - was depriving less fortunate citizens of their livelihoods.
Robert Peston, BBC business editor

The government provided both firms with $10bn as part of the its wider Troubled Asset Relief Program (Tarp). Goldman recently reported a better-than-expected net profit of $3.44bn for the three months to June.

Citigroup and Merrill Lynch paid bonuses of $5.33bn and $3.6bn respectively while seeing losses of more than $27m each, said the report.

"Other banks, like State Street and Bank of New York Mellon, paid bonuses that were more in line with their net income, which is certainly what one would expect in a difficult year like 2008".

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