Obama unveils executive pay cap

President Obama: 'We're demanding restraint in exchange for Federal aid'

US President Barack Obama has announced a $500,000 (£355,000) limit on executive pay at US firms that need substantial fresh government aid.

The move follows widespread public anger over the levels of pay on Wall Street, but is not expected to be applied retrospectively.

President Obama said it was "shameful" that top bankers had awarded themselves giant bonuses last year.

He added that taxpayers should not be "subsidising excessive compensation".

'Justify expenses'

In addition to the limit on basic pay, Mr Obama said if affected executives receive any further bonuses, they "will come in the form of stock that can't be paid up until taxpayers are paid back for their assistance".

We're asking these firms to take responsibility, to recognise the nature of this crisis and their role in it President Obama

Firms will also have to publicly disclose "all the perks and luxuries bestowed upon senior executives, and provide an explanation to taxpayers and to shareholders as to why these expenses are justified".

"We're asking these firms to take responsibility, to recognise the nature of this crisis and their role in it," said the president.

WALL STREET BONUSES 2008 Total bonuses paid in 2008 - $18.4bn This is a 44% fall on the $32.9bn bonuses paid in 2007 Average payout in 2008 of $112,000 The fall in the bonus pool is expected to cut the tax income for New York city and state by $1.27bn Source: New York State

Analysts said the plan could raise the likelihood of senior executives moving from firms who need government aid to those that don't.

"There is certainly a possibility of talent flight from the big firms to the smaller investment banks," said Lauren Smith, analyst at Keefe, Bruyette & Woods.

Fellow analyst, Mark Poerio, of law firm Paul Hastings said he agreed.

"If you have someone who was making well over $1m, and now they are capped at $500,000, it is very conceivable that they are going to look to go to a company that is not subject to those limitations," he said.

'Take responsibility'

"We all need to take responsibility," said President Obama.

It will be pretty tricky for the British government to ignore the new US norm for running a semi-nationalised business BBC business editor Robert Peston Read Robert's blog here

"And this includes executives at major financial firms who turned to the American people, hat in hand, when they were in trouble, even as they paid themselves their customary lavish bonuses.

"We're asking these firms to take responsibility, to recognise the nature of this crisis and their role in it."

According to the available figures, US banking bosses received bonuses of more than $18.4bn last year.

However, Citigroup, which has received $45bn of government aid, has already said its bosses, including chief executive Vikram Pandit, would forego their 2008 bonuses.

Mr Pandit earned more than $3m in 2007, including bonuses.

HAVE YOUR SAY Considering the mess that these people have caused, they should not be paid a penny in bonuses John Brockhurst, UK Send us your comments

Republicans have supported the move to limit the pay of executives at firms that secure fresh government money.

BBC business editor Robert Peston said President Obama's move will inevitably increase pressure on the UK government to introduce something similar for British banks that have received state support, such as Royal Bank of Scotland and Lloyds.