Top employees leave financial firms ahead of pay cuts
Friday, October 23, 2009
NEW YORK -- Even before the Obama administration formally tightened executive compensation at bailed-out companies, the prospect of pay cuts had led some top employees to depart.
The administration had tasked Kenneth Feinberg, the Treasury Department's special master on compensation, to evaluate the pay packages of 25 of the most highly compensated executives at each of seven firms receiving exceptionally large amounts of taxpayer assistance.
But Thursday, he ruled only on slightly more than three quarters of the pay packages that were to be under his purview. The balance reflected executives who have left since he began his work in June or will be gone by the end of the year.
Many executives were driven away by the uncertainty of working for companies closely overseen by Washington, opting instead for firms not under the microscope, including competitors that have already returned the bailout funds to the government, according to executives and supervisors at the companies.
"There's no question people have left because of uncertainty of our ability to pay," said an executive at one of the affected firms. "It's a highly competitive market out there."
At Bank of America, for instance, only 14 of the 25 highly paid executives remained by the time Feinberg announced his decision. Under his plan, compensation for the most highly paid employees at the bank would be a maximum of $9.9 million. The bank had sought permission to pay as much as $21 million, according to Treasury Department documents.
At American International Group, only 13 people of the top 25 were still on hand for Feinberg's decision.
Feinberg did not detail how he plans to tackle the politically sensitive issue of nearly $200 million in bonuses due in March to employees at AIG Financial Products, the unit whose complex derivatives contracts led to the collapse of AIG last fall. Feinberg has urged the company to find a way to scale back the bonuses in hopes of preventing another round of public outrage.
In his written ruling Thursday, Feinberg noted that the firm had played a role "in the events necessitating taxpayer intervention," and concluded that AIG Financial Products employees should be paid only what their base salaries were on Dec. 31, 2008. In addition, he said that he continues to urge company officials to recoup the bonus payments that some Financial Products employees pledged to repay earlier this spring but did not. Until that issue is resolved, he wrote, employees should receive no pay in addition to their base salaries.
That news drew scorn Thursday from employees at AIG Financial Products who said they had repeatedly offered to rework their pay arrangements but that Feinberg was unwilling to work with them.
"He has zero credibility with FP employees at this point," said one employee, who was not authorized to speak on the record. "It's a very demoralized workforce."
Several of the companies said they had already been making changes in their compensation plans to better link executive pay to performance and that their compensation committees had worked closely with Feinberg's team to come up with a final plan reflecting that principle.
"We've been going down that road," said Bob Stickler, a Bank of America spokesman. "This is really more of the same." But he also said that the ruling "does go pretty far and there are competitive issues we're worried about."
On Wall Street, reaction to Feinberg's ruling was swift, with some executives arguing that it will further handicap the most troubled firms by driving away top employees while making companies unwilling to promote rising stars for fear of bringing them to Feinberg's attention.
But Nomi Prins, a former Goldman Sachs employee, said Feinberg's rulings are unlikely to change the culture of bonuses on Wall Street.
"I don't think Wall Street is afraid of this at all," said Prins, author of "It Takes a Pillage: Behind the Bailouts, Bonuses, and Backroom Deals from Washington to Wall Street."
"It's going to affect a small portion of a small portion of the industry. It won't have a lasting impact."