This article on compensation at companies receiving extensive financial assistance from the public misstated, because of incorrect information supplied by federal officials, the dates by which the firms must submit their proposed compensation packages for government approval. The deadlines are Aug. 14 for senior executives and the 20 highest-paid employees and Oct. 13 for the rest of each firm's 100 highest-compensated employees.
Pay Czar Quietly Meets With Rescued Companies
Sunday, August 9, 2009
President Obama's compensation czar has been meeting for weeks with executives at some of the country's largest and most troubled companies as they face a Thursday deadline to propose how much they will pay their top employees.
Kenneth R. Feinberg has the unprecedented task of deciding executive compensation at seven companies that received large government bailouts. His meetings with American International Group, Citigroup, Bank of America, General Motors, Chrysler, Chrysler Financial and GMAC have been conducted in secret, with neither Feinberg nor the companies willing to say much in public.
But one window into this opaque process is an account provided by people familiar with his discussions with AIG, the crippled insurer that has received tens of billions of dollars in federal rescue money.
Last month, Feinberg's face flashed across the video screens at corporate offices in London, Paris and Wilton, Conn. Over the better part of an hour, AIG employees on both sides of the Atlantic peppered him with questions about their compensation, recalled several people familiar with the videoconference. What could happen to the bonuses they were promised? Would he try to alter their contracts? How would the company's pay structure change?
Some of AIG's highest earners work in these offices, which are home to its financial products division. In March, the division's employees were paid $165 million in retention bonuses, triggering national outrage. More than $200 million more are scheduled to come due in 2010.
After the public uproar this spring, the government brought in Feinberg to help it address -- and defuse -- one of the most politically sensitive issues it faces.
Feinberg, who has sole discretion to set compensation for the top 25 employees of each of those companies, has 60 days to make a determination after the proposals are complete. Under the administration's initiative to curb excessive pay practices, each of the seven companies must also receive his approval for how it pays the rest of its 100 most highly compensated executives and employees. The companies must submit pay plans for these employees by Oct. 12.
With Congress and the public already exasperated by the hefty pay awarded to Wall Street bankers, Feinberg is under intense pressure to put checks on excessive pay. But if he goes too far, the companies he oversees could lose their rainmakers and other key executives to rival firms that are not subject to similar pay restrictions.
"I wish I could hum the theme song for 'Mission: Impossible' because I think his job is mission impossible," said Robert Profusek, a lawyer at Jones Day who has advised major banks on compensation matters. "On the one hand, there's this populist outrage that is fanned every other day by somebody in Washington. . . . But he can't just go in there with a hatchet and cut everything because the good people will leave. That's not in our best interest" as taxpayers.
The seven companies are still finalizing the pay plans due Thursday, and several possible approaches are being discussed, say people with knowledge of the deliberations. All seek to give employees an incentive to care about the long-term health of their company instead of short-term gain. They include extending the time that executives must wait before cashing in on restricted stock awards, boosting the proportion of pay that comes in the form of company stock, and adding stronger clawback provisions that allow firms under certain conditions to take back compensation they've already paid.
During the videoconference with AIG employees, Feinberg mostly avoided giving them detailed answers to their questions. Many of the employees left frustrated because he gave them no sense of whether he would seek to modify contracts that promise them upcoming bonuses, said people familiar with the session.
Legally, Feinberg cannot prohibit bonuses that were promised before the February passage of the stimulus bill, which included new compensation restrictions for companies receiving government rescue funds. That includes, for example, retention payments to AIG employees. He could try to renegotiate those bonuses if he thinks they're against the public interest, according to the rules on new compensation.