Critics say Treasury plan may not curb CEO pay

By Martha Graybow and Rachelle Younglai

NEW YORK/WASHINGTON (Reuters) - New rules limiting executive payouts at U.S. banks participating in a federal cash infusion plan may not rein in CEO compensation at all because the language is vague and subject to government interpretation, critics say.

The pay rules were detailed on Tuesday as part of U.S. Treasury Secretary Henry Paulson's plan to inject $250 billion (142.7 billion pounds) into U.S. banks in a bid to shore up confidence.

Critics say that while the pay limits do place some restrictions on things like so-called "golden parachutes" awarded to departing executives, the rules overall set no precise limits on corporate leaders' compensation.

The Treasury Department says banks that accept the cash infusions must ensure that compensation does not encourage executives to take "unnecessary and excessive risks that threaten the value of the financial institution." But the rules do not define those risks and many question who will decide what is excessive.

"Without clear limits on pay, the public is being asked to put their trust in Secretary Paulson, a man who made hundreds of millions of dollars as a Wall Street CEO, to decide what's 'excessive,'" said Sarah Anderson, a pay expert at the Institute for Policy Studies, which has pressed for CEO pay curbs.

Anderson said "a bailed-out bank board of directors would be perfectly free to funnel $10 million into its CEO's pockets -- unless Paulson decides that reward poses an excessive risk to the institution."

Bill Coleman, chief compensation officer at Salary.com, a company that tracks pay matters, said it's unclear who will judge whether pay plans for top executives encourage risky behaviour or not.

"I'm not convinced that we have the ability to really monitor those things," Coleman said.