Pay czar limits salaries for top executives at 5 firms
Wednesday, March 24, 2010
The Obama administration's pay czar on Tuesday announced further pay cuts for top executives at five U.S. firms still receiving substantial help from the federal government, saying the vast majority of cash salaries will remain at $500,000 or less.
The rulings by Kenneth R. Feinberg, the administration's special master for compensation, apply to 119 executives at American International Group, General Motors, Chrysler, GMAC and Chrysler Financial. During a briefing at the Treasury Department, Feinberg said that he would reduce cash payments to the top 25 executives at each of the companies by 33 percent, on average, compared with 2009 levels. He said total 2010 compensation -- which includes company stock -- would also decline.
Feinberg's decisions on 2010 compensation mark a continuation of the experiment begun last year, when the government intervened in the pay decisions of companies that received billions of dollars in federal assistance. Appointed in June after months of public outcry over lavish pay at bailed-out firms, Feinberg last fall outlined compensation limits for top earners at the largest aid recipients. Now, as then, the issue of executive pay remains a lightning rod on Capitol Hill and around the country.
While some firms have argued that Feinberg's actions put them at risk of losing top talent to competitors, Feinberg said Tuesday that his initial moves to slash top executives' pay had not resulted in an exodus from the bailed-out firms. He cited the fact that more than 80 percent of the executives whose pay he ruled on in October were still with their companies in early 2010.
A fair number of executives, however, left the affected companies between the time that Feinberg began his work and the end of last year. Many were driven away by the uncertainty of working for companies closely overseen by Washington and went to work for firms outside Feinberg's purview, their colleagues have said.
Feinberg insisted Tuesday that beyond the cash salary cuts, his rulings "reaffirm" broader principles about compensation set forth during his initial decisions last fall, which sought to create financial incentives for executives to work for the long-term stability of their companies.
For instance, Feinberg has ruled that a majority of compensation paid in stock must be held over longer periods of time and cannot be cashed out in the short term. Pay incentives to executives also must be tied to objective performance measures, he said.
Feinberg also is broadening his review of financial industry compensation, sending letters to 419 banks that received assistance as part of the Treasury Department's financial rescue program. The "look back letter" from Feinberg will give companies 30 days to furnish the requested information about executive pay. The review concerns only executives who earned an annualized salary of more than $500,000 during the four-month period between October 2008, when the banks began receiving government support, and February 2009, when his authority granted under last year's stimulus bill took effect.
"If we find there is a compensation decision inconsistent with the public interest, I cannot then file a lawsuit, cannot subpoena records, can't demand an investigation," Feinberg said Tuesday. "All I have at my disposal, under law, is the bully pulpit."
The move seems in line with Feinberg's goal of encouraging more prudent pay standards at financial firms. He said he would issue a report on the information culled through the broader review, suggesting that some firms could feel public pressure to return money to taxpayers.
Executives at auto lender GMAC, which has received three federal bailouts, received among the strictest rulings from Feinberg on Tuesday. The company's chief executive, Michael Carpenter, will be paid only in stock, and no top executive at the firm will receive a cash salary exceeding $500,000. The company, however, will be able to award up to $12.5 million of stock to employees if they meet performance goals, documents show.
Feinberg said Tuesday that he had succeeded in forcing executives at AIG Financial Products, whose faulty derivatives contracts nearly sunk AIG, to hand over the $45 million in retention bonuses they had pledged to return last year. But Feinberg was unable legally to prevent the payout of a much larger chunk of bonuses to Financial Products employees. Instead, he took those payments into consideration when deciding to freeze the 2010 salaries for all but one of the top-earning Financial Products executives, he said.
Feinberg singled out new AIG chief executive Robert Benmosche for working closely on the pay issues, saying he "deserves specific mention and praise." Benmosche's $10.5 million compensation package -- a mix of stock and cash -- remains among the largest awards approved Tuesday. Feinberg also made exceptions to his $500,000 salary cap for four other AIG executives, according to Treasury documents.
While Feinberg clearly scaled back some compensation proposals submitted by the five firms remaining under his watch, he did note that company officials had been "extremely cooperative, helpful, open, transparent" during recent negotiations.
"I believe they're comfortable with the result," Feinberg said. "I certainly hope that's the case."