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Pay caps extended for firms that took bailouts

Mid-level executives limited to $500,000, salary 'czar' decrees.

December 11, 2009|By Martin Zimmerman
  • Kenneth Feinberg, the Obama administration's so-called pay czar, said he granted about a dozen exceptions to the $500,000 pay limit so companies could retain key people whose salaries will range from $500,000 to $950,000 and one that will make about $1.5 million.
Kenneth Feinberg, the Obama administration's so-called pay czar,… (Joshua Roberts / Bloomberg…)

The Obama administration, broadening its intervention in corporate pay practices, has imposed a $500,000-per-person cap on overall compensation for a swath of mid-level executives at four of the biggest recipients of federal bailout money.

Kenneth Feinberg, the Treasury Department's so-called pay czar under the government's $700-billion Troubled Asset Relief Program, also mandated Friday that at least half of the affected employees' annual pay must be deferred for at least three years. And no more than 45% of the pay can be in cash.

Feinberg also decreed that any bonuses for the executives must be based on "real performance measures." At least 50% of bonuses must be paid in stock that can't be sold for a period of time. And companies must retain the right to take back incentive payments if the results they are based on "prove illusory."

"Today's decisions fundamentally restructure pay to emphasize the long term," the Treasury Department said in a statement, adding that "the rules put an end to the practice of paying routine 'bonuses' regardless of performance."

The rules apply to the 26th- through 100th-highest-paid employees at carmaker General Motors Co. and its finance arm GMAC Inc., insurer American International Group Inc. and banking giant Citigroup Inc.

The companies were among seven firms that received what Treasury officials termed "exceptional" assistance under TARP and therefore became subject to Feinberg's rulings on pay. In October, he imposed stringent restrictions on compensation for the 25 highest-paid executives at those firms.

Of the original seven, automaker Chrysler Group and its financing arm aren't affected by the latest round of pay rules because none of their executives in the targeted group earns more than $500,000 a year, officials said. And Bank of America Corp. is now exempt from Feinberg's decrees because it repaid its $45 billion in TARP money this week.

The latest rules apply only to the rest of 2009, but that includes year-end bonuses, and will serve as a framework for crafting 2010 compensation, the Treasury Department said.

Feinberg said he granted about a dozen exceptions to the $500,000 pay limit so companies could retain key people and stay competitive. Salaries for most of those executives, whom Feinberg didn't identify, will range from $500,000 to $950,000, he said, but one will get about $1.5 million.

At least some of the executives who got exceptions work at AIG, Feinberg said. The Treasury and the Federal Reserve asserted that the higher amounts were crucial to the insurer's long-term success, a Treasury spokeswoman said.

Feinberg's latest rulings are a step in the right direction but should have gone further, said Vineeta Anand, chief research analyst at the AFL-CIO's office of investment. The cash portion of pay should be capped at 25%, she said, and the waiting period to collect deferred pay should be five years, not three.

She also questioned whether Bank of America and Citigroup -- which is rumored to be weighing its own TARP exit -- are healthy enough to pay back the government simply so they can escape the limits on executive compensation.

"It would be a terrible thing if they got out from under these rules and then came back with a begging bowl saying, 'Can we have some more?' " she said.

Opponents of the compensation caps have argued that they can make it difficult for companies to attract top talent. Anand dismissed the notion.

"Did they really attract the best talent" in the past, she asked. "If this is the best talent they could get, the country is in big trouble."


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