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Pay czar slashes top executives' compensation at five firms

Kenneth R. Feinberg imposes an average cut of 15% for the top 25 earners at the recipients of exceptional federal bailouts.

March 24, 2010|By Jim Puzzanghera
  • Kenneth R. Feinberg, the Obama administration's special master for executive compensation, cut the total compensation for top executives at five companies by an average of 15%.
Kenneth R. Feinberg, the Obama administration's special master… (Melissa Golden / Bloomberg )

Reporting from Washington — Amid continued public anger about huge corporate pay packages, the Obama administration's pay czar Tuesday took a series of steps to try to rein in executive salaries and bonuses at firms that received federal taxpayer bailouts.

Kenneth R. Feinberg cut annual compensation an average of 15% for top executives at American International Group Inc., General Motors Co., Chrysler and two other firms that have yet to repay their loans.

Feinberg, the special master for executive compensation under the $700-billion Troubled Asset Relief Program, also sent letters to all 419 recipients of TARP cash -- many of which have repaid the money -- in an attempt to determine whether salaries and bonuses paid during the height of the financial crisis were too high.

The moves were among the latest by Feinberg, who issued his first set of pay restrictions in October. At that time, he reduced total compensation for the 25 highest-paid executives at seven large bailed-out firms an average of about 50% for November and December.

To curtail the risky behavior that triggered the financial crisis, he pushed more of the compensation from guaranteed cash into stock that executives would have to hold for years.

On Tuesday, Feinberg said that those restrictions had not caused an exodus of top talent, noting that 84% of the executives covered by his 2009 pay rulings remained with their firms.

"I am encouraged by the statistics, which I think undercut the argument I've heard all along that if you don't pay more and give more salaries and higher salaries, people will leave," Feinberg told reporters. "They're not leaving."

By law, Feinberg can set pay for top executives at companies that received "exceptional taxpayer assistance" from TARP.

That originally included seven companies -- GM and Chrysler and their financing arms, GMAC and Chrysler Financial, and AIG, Citigroup Inc. and Bank of America Corp. Feinberg reduced cash pay at those companies an average of 90% in October.

Such restrictions provided additional impetus for Citigroup and Bank of America to repay their bailout money, which they did in December. That allowed them to escape Feinberg's 2010 pay restrictions.

At the other five companies, Feinberg cut cash salaries and bonuses this year for the 25 top executives an average of 33% from last year's levels.

Overall, 82% of those executives will earn annual cash salaries of $500,000 or less. The restrictions are retroactive to Jan. 1.

Still, total executive compensation remained high.

At AIG, for example, 10 of the top 25 employees have pay packages of at least $5 million, including long-term restricted stock. While overall cash salaries for AIG executives fell a combined $22.2 million, or 63%, from last year, total compensation for them increased $1.9 million.

Feinberg was appointed last year after Congress demanded more oversight of executive compensation after the financial crisis bailouts. A ruckus over AIG bonuses fueled the effort.

The giant insurer, which has received more than $182 billion in commitments of federal aid, paid $165 million in retention bonuses last March to employees in the division that brought the company to its knees.

The fact that the bonuses were owed under contracts signed before the financial crisis didn't sway angry lawmakers or an angrier public.

Though Feinberg can set salaries for the 25 highest-paid executives at the few firms receiving major TARP money, his authority over the rest of the TARP recipients is more limited. He sent letters to all of them Tuesday, asking for details about salaries and bonuses paid to employees who earned more than $500,000 in 2008 or 2009.

Feinberg is required by law to review those payments -- from the date companies received TARP money in the fall of 2008 until Feb. 17, 2009 -- to determine whether the compensation was "inconsistent with the public interest."

Feinberg can seek repayment of any compensation he determines was inappropriate, but he cannot force it.

Still, he said he could publicly shame any company that paid exorbitant salaries or bonuses and probably would identify the executives who received the money. In his pay restrictions in October and on Tuesday, Feinberg did not name the executives.

"If we find there is a compensation decision inconsistent with the public interest, I cannot then file a lawsuit, can't subpoena records, can't demand an investigation," Feinberg told reporters. "All I have at my disposable under the law is the bully pulpit."

Asked whether a multimillion-dollar bonus to an executive by a TARP recipient that lost money in 2008 would constitute a violation, Feinberg said it "certainly raises some issues with me."

Feinberg said the government will get back the entire $45 million in retention bonuses that AIG employees pledged to repay last year amid the public uproar.

But that was not the total amount of bonuses due. Feinberg said he had no authority to force the repayment of such bonuses but noted that he persuaded executives at the four other companies under his oversight to forgo their bonuses.

In the case of AIG executives, Feinberg said he took the bonus payments into consideration in freezing the 2010 salaries for five of the six AIG Financial Products executives among the top 25 earners, replacing it with stock that must be held for at least two years.

Feinberg said he agreed to a request from AIG Chief Executive Robert H. Benmosche to raise the 2010 cash salary of the other Financial Products executives, but it was limited to $450,000.


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