The Strengths and Weaknesses of the Bill

The presence of the executive pay provisions in the bailout bill is a small victory in and of itself, says Anderson. Secretary Paulson to his proposal, saying Wall Street would never participate in the bailout if such limits were a condition. Anderson says Secretary Paulson caved on executive compensation because he realized his bailout would go up in smoke if he didn't make some concessions. Still, he managed to beat back tougher proposals introduced by Rep. Barney Frank (D-MA) and Senator Christopher Dodd (D-CT), Anderson adds. called for at bailed out firms at $400,000.

Anderson says the prohibition of golden parachutes is the strongest part of the bill. "That is one piece of the legislation that I do see as quite positive and very clear," she says.

She also identifies as an important step a cap that the bill imposes on corporate income tax deductions, even though it only applies to firms whose assets the government purchases through auction. Financial institutions participating in the bailout through auction purchases will not be allowed to deduct executive pay that exceeds $500,000 a year from their corporate income taxes, as they're currently allowed under the tax code. "There has been theoretically a $1 million cap on tax deductibility, but it's been meaningless because it gave an exception for performance-based pay. The bailout eliminated that exception so stock options and all kind of compensation will be covered in that $500,000 tax deductibility cap," she says.

The bill's major shortcoming is that it doesn't set a hard and fast limit on executive pay, says Anderson. It's up to Paulson to determine what compensation is excessive and rewards unnecessary risks.