The Obama administration has been embarrassed one too many times when companies that received billions of taxpayer bailout dollars then decide to pay out lavish bonuses to their executives.
Now, the president is trying to get a handle on those payouts. Seven companies that are essentially on government life support today have to tell the Treasury Department's pay czar, Kenneth Feinberg how much they plan to pay their 25 top executives.
"He's going to have unilateral authority to change the compensation for these people working for private companies," said Jonathan Koppell, an associate professor of politics and management at the Yale School of Management. "A lot of it is political theater. It's a way of demonstrating to the nation that the government leadership understands their frustration."
Taxpayers invested $352 billion to bail out these companies. The question now: how much leverage does that buy?
Take Citigroup. The banking giant received a $45 billion bailout and the government now owns a third of the company.
But Citibank energy trader Andrew Hall is still in line for a bonus of up to $100 million because he signed his contract before the Feb. 11 deadline allowed under the law. So he'll probably be able to keep up the mortgage payments on the 1,000-year old castle he owns in Germany.
Citigroup CEO Vikram Pandit promised to pay himself a salary of just one dollar this year. Presumably he has savings. Last year, Pandit's total compensation amounted to well over $38 million.
Feinberg has 60 days to review the compensation packages and propose adjustments.
"If the czar agrees to pay levels as it now stands there will be public outrage. If the czar cuts pay and performance slips at those institutions they'll blame the czar for poor results and investors will lose," said Charles M. Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.
Feinberg, a well-connected Washington lawyer, is doing this work for free. (He's technically called the Special Master for TARP Executive Compensation.) It's a thankless task. But he's got some experience in that department. Prior to this, he was in charge of the fund that paid the families of the people who died on 9/11. His work there was widely praised, but some of the victims' families accused him of putting a price on human lives.
Besides Citi, the other companies are: AIG, Bank of America, GM, GMAC, Chrysler, and Chrysler Financial. Pay plans for the next top 75 executives at these companies are due at a later date.
"Good Morning America" Financial Contributor and President of Ariel Investments Mellody Hobson said Feinberg's work will probably make a lot of people feel better by letting them know that taxpayer money isn't going into the pockets of people who may not deserve it.
The downside is that it could lead to a dramatic change in culture if the top people leave after seeing their bonuses cut. And hot prospects fresh out of business school might decide not to interview at a company that took TARP money for fear that the government would limit their pay.
"The superstars always have options. They can go somewhere else," Hobson said. "And if there's a sense that there's a limit on their financial success, they will do that which ultimately then hurts the American taxpayer because it could weaken the companies."