Pay czar Ken Feinberg calls executive compensation 'ill-advised' but not illegal
Saturday, July 24, 2010
The government's pay czar scolded 17 banks for handing out $1.6 billion in excess executive pay while benefiting from taxpayer bailout funds at the height of the financial crisis. But he will not force banks to return any of the money.
Kenneth Feinberg, who was appointed as the Obama administration's special master for compensation, said the offending firms gave out payments that were "ill-advised," but that they did not act against the public interest or break the law.
The firms that paid too much, according to the report released by Feinberg on Friday, include the country's biggest banks: Citigroup, Goldman Sachs, Bank of America, JPMorgan Chase and Morgan Stanley.
Citigroup, which received $45 billion in bailout help, was the worst offender, handing out $400 million in excess pay, according to a government source close to the investigation. Much of the money went to executives at Citigroup's successful energy trading unit, Phibro.
Other large banks formed a second tier of excess pay, followed by the smallest banks of the group.
Feinberg examined payouts at the 419 firms that received taxpayer assistance, focusing on executives who were paid more than $500,000 during a handful of months from late 2008 to early 2009. In determining excess pay, Feinberg used his judgment while examining two pieces of criteria: the amount of the payout and whether there was enough justification for the pay.
"This is armchair quarterbacking," said Feinberg, adding that he looked back at events from two years ago with "some reluctance" because he was second-guessing decisions made by others.
Of the 17 companies that he found were egregious in their compensation, 11 have repaid the assistance received from taxpayers.
Friday's report recommends that companies adopt an emergency provision that would allow them to break pay contracts if another financial crisis were to occur. If the company's board determined that the firm was in a crisis, the compensation committee would be allowed to revisit pay levels. During the recent banking meltdown, many companies protested that they were legally obligated to honor their payment contracts with executives.
Feinberg said all 17 companies have agreed to consider such an option.
"Getting our compensation structure right is a priority for us," Citigroup said in a statement. "Since the crisis, we have done a lot of work to make sure it's performance-based and we look forward to reviewing the Special Master's recommendations."
Compensation experts, however, questioned a system where banks could lower pay for top executives in the midst of steering their firms through trouble.