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TARP Executive Compensation Limits Set at $500,000

Senior executives for companies receiving TARP money will be limited to annual salaries of $500,000 under executive compensation caps to be announced Wednesday by President Obama.

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Sources say there will also be language in the new rules about bonuses being paid in stock rather than in cash in order to prompt executives to think longer-term about their decisions.

Obama, who sharply criticized Wall Street chiefs for accepting billions of dollars in bonuses last year while the economy fizzled, had promised compensation reform as part of a package of stricter regulations on the financial industry.

Executive compensation has been a flash point issue in the debate about federal bailout of banks.

Banks receiving government funds, yet still paying bonuses to top executives, have come under fire from Congress and the public.

Wall Street, however, has argued that bonuses are a standard part of its historical payment plan and without them, top talent would leave, rendering banks even less able to cope in the current crisis.

It was unclear if the $500,000 compensation cap would allow the addition of bonuses. Currently some Wall Street executives have salaries in the six figure range, but rely on the bonus system to take their total yearly compensation into the millions.

An Obama administration official told Reuters the new rules would require companies that get exceptional government funds—such as financial giant Citigroup and insurer AIG have in the past—to abide by the cap.

The rules will require banks to give shareholders greater say over the money paid to company chiefs, according to information provided by the administration official.

They will also put restrictions on golden parachutes—the lavish severance packages common for senior executives—and require more transparency for costs such as aviation services, big parties, office renovations and conferences.

Healthier financial institutions that receive more generally available government funds will also be subject to the requirements unless shareholders vote to waive them.

Additional compensation must be limited to restricted stock that does not vest until government money is paid back with interest.

Skeptics say any compensation reform has to address all aspects from salary to stock options to bonuses.

Congressional Democrats have been pushing for tougher compensation rules under the second-half of the TARP funding and have made their desires known to the Obama administration.

Obama's measures come after his own outrage and public outcry over $18.4 billion in bonuses paid out in 2008 at a time when taxpayer money was shoring up the financial system.

Obama and Treasury Secretary Timothy Geithner were scheduled to discuss details during an announcement at the White House at 11:00 am EST.