U.S. pay czar says renegotiating AIG bonuses is a 'top priority'
Thursday, October 29, 2009
Kenneth R. Feinberg, the Obama administration's "pay czar," said Wednesday that renegotiating bonuses guaranteed to executives at American International Group will be a "top priority" as he reviews pay packages for 2010, setting the stage for a potential showdown between the federal government and the troubled insurer.
Employees in AIG Financial Products, the division whose complex derivatives contracts nearly led to the collapse of the insurance giant last fall, are due almost $200 million in retention bonuses in March. Those payments could prompt an outcry similar to the public outrage that followed the disclosure earlier this year that the company had paid out about $165 million in such awards.
Testifying before the House oversight committee, Feinberg was asked whether there was anything he could do to stop the next round of payments. He responded that he would meet with AIG officials in January, when he begins his review of pay packages for 2010, to "see what we can work out."
This could prove to be a difficult task, based on recent history and the limits of Feinberg's power. While Feinberg can set pay packages for 25 of the most highly compensated executives at AIG and six other firms receiving exceptionally large amounts of taxpayer assistance, he does not have authority over payments that were guaranteed in contracts signed before new restrictions on compensation were enacted in February.
Feinberg noted in his testimony that he got "almost all" all of the companies to voluntarily agree to restructure their contracts that guaranteed compensation. For example, one Bank of America executive who was to receive a "substantial guaranteed cash payment" agreed instead to receive $700,000 in cash salary and the rest in stock that would be redeemable over four years, according to Treasury documents. But Feinberg was unable to reach such an agreement with AIG, the documents say, so he took the retention bonuses into account when he decided how much to cut compensation that he does have control over.
AIG declined Wednesday to comment on Feinberg's remarks. In a securities filing on Friday, AIG disclosed that it had made $12.1 million in retention payments that had been delayed pending Feinberg's review. Of that amount, $4 million went to the executives under Feinberg's purview.
Feinberg also testified that his authority to set pay should not extend beyond the seven firms. Taxpayers have a vested interest in these companies since the government owns significant stakes in each. Aside from AIG and Bank of America, the other firms are Citigroup, General Motors, Chrysler, GMAC Financial Services and Chrysler Financial.
"The federal government should not enter the business of micromanaging compensation practices beyond these seven companies," he said. But Feinberg added that he hoped other companies would model their executive compensation on the practices he was putting in place at the seven firms.