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Effort to curb pay looks to boards

Administration hopes shareholder influence is key rather than limits by regulation.

WASHINGTON - The Obama administration said yesterday that it would try to tame executive compensation by encouraging shareholder pressure rather than by imposing regulatory limits. The administration has partly blamed the compensation structure for the nation's financial crisis.

Treasury Secretary Timothy Geithner said the administration would ask Congress to give shareholders a nonbinding voice on executive pay and to require corporate-compensation committees to be independent from company management. The latter provision would give the Securities and Exchange Commission authority to strengthen the independence of company panels that set executive pay.

In many instances currently, board members who also are company executives serve on the committees that set management pay.

Separately, the administration is preparing to issue new, more specific regulations governing pay at financial institutions that have received infusions from the $700 billion Troubled Asset Relief Program. Those regulations, following legislation already passed by Congress, would limit top executives at these companies to bonuses equal to no more than one-third of their annual salaries.

The administration would appoint a "special master" to oversee compensation at firms receiving large amounts of government assistance. The pay overseer would have the power to reject excessively generous pay plans.

The issue of executive pay has raised a strong populist outcry, especially after the economy began stumbling late in 2007 and stocks were falling. Lawmakers have remained attuned to it, particularly when insurer American International Group Inc. in March announced bonuses totaling more than $165 million.

As for the goal of the legislative efforts announced yesterday, Geithner said that "we'd like to see better transparency and accountability, frankly" of executive pay practices.

He said the efforts would reinforce administration compensation guidelines, released yesterday, that encourage corporate boards to adopt pay packages that reward long-term performance rather than short-term gains and to better manage the relationship between risk and incentive.

Those guidelines, or principles, are not enforceable, but are meant as a message to corporate boards and to shareholders.

So-called shareholder "say on pay" legislation cleared the House in April 2007 by a 2-1 margin, but it went nowhere in the Senate. It was opposed by the Bush White House and most Republicans.