Obama administration to cut executive pay at 7 bailed-out firms
NEW YORK -- The Obama administration plans to order companies that have received exceptionally large amounts of bailout money from the government to slash compensation for their highest-paid executives by about half on average, according to people familiar with the long-awaited decision.
The cuts will affect 25 of the most highly paid executives at each of five major financial companies and two automakers, according to the sources, who spoke on the condition of anonymity because the plan has not been made public. Cash salaries will be cut by about 90 percent compared with last year, they said.
The administration will also curtail many corporate perks, including the use of corporate jets for personal travel, chauffeured drivers and country club fee reimbursement, people familiar with the matter have said. Individual perks worth more than $25,000 have received particular scrutiny.
In making the ruling, the administration's "pay czar," Kenneth R. Feinberg, will be inserting the government as never before into pay decisions traditionally made in corporate boardrooms. His decree, which is expected to be announced by the Treasury Department on Thursday, will culminate a months-long review prompted by public outrage over outsize paydays at failing companies saved with taxpayer money.
The seven companies under Feinberg's purview are Citigroup, Bank of America, General Motors, Chrysler, GMAC, Chrysler Financial and American International Group. These firms have received a total of about $250 billion in bailout funds from the Troubled Assets Relief Program, adopted last year by Congress, and benefited from hundreds of billions of dollars more in government guarantees and other support.
Feinberg, who was named special master on compensation by the administration in June, has sole discretion to set compensation for the five top senior executives plus the next 20 highest-paid people at each of the seven companies. For months, he has been meeting with officials at each of the firms to negotiate executive-pay arrangements. In August, each company submitted detailed compensation plans for their top earners. Under the Treasury Department's rules, Feinberg had 60 days to make a determination after receiving the pay plans. His decisions are binding.
Under Feinberg's plan, cash salary for affected executives will go down by an average of 90 percent, according to a source with knowledge of the matter. That means an executive who received $1 million in cash salary last year would get $100,000 this year.
Feinberg has approved cash salaries of more than $1 million for about six people, and cash salaries of between $500,000 to $1 million for another half-dozen people, the source said.
But executives can still receive additional salary in stock, the source said. The portion of salary given in stock would vest immediately, although executives will have to wait two years before redeeming the shares. Even then, they will be able to cash in on only a third of that stock. The executives will be able to cash in another third after three years and the rest after four years. Because the shares are considered salary, executives get to keep the stock even if they leave their employers before they are allowed to cash in their shares.
The final component of an employee's compensation under Feinberg's plan would come in the form of long-term stock. The awards would be based on performance and could be redeemed after three years, or sooner if the company repays its government aid, the source said.
Not every employee under Feinberg's purview will receive all three components of the pay package. For example, executives at the Financial Products unit of AIG -- widely blamed for the insurer's downfall -- will receive only a base cash salary, the source said. None of the AIG unit's employees will receive more than $200,000.
Executives at Chrysler Financial -- the automaker's lending arm, which is winding down operations -- will also receive only the cash salary component, the source said.