Report: Government Bailout Had No Lasting Impact On Bank Pay

Gov't regulations have little impact on banks bailed by taxpayers

ByABC News
February 11, 2011, 1:53 PM

WASHINGTON, Feb. 12, 2011 -- The government's restrictions on pay at banks bailed out by taxpayers had little lasting impact because officials soft-pedaled some issues and did much of their work out of the public's view, a congressional panel says.

Obama administration pay czar Kenneth Feinberg used "black-box" processes that provide few lessons for the private sector, according to a report Thursday from the Congressional Oversight Panel that monitors the $700 billion financial bailout fund. The report faults Feinberg for deciding not to seek the return of $1.7 billion in banker pay that he deemed "ill-advised."

An office with far broader oversight than Feinberg's failed to produce a single public document that could help Wall Street and its regulators improve bankers' incentives to make future crises less likely, the report says.

"There's a transparency problem with all of this," said panel chairman Ted Kaufman, a former Democratic senator from Delaware. "I don't know if they should have done more, because we don't have a real good idea of what they were doing."

The report says Feinberg's office successfully reduced overall pay 55% between 2008 and 2009 for top executives at the seven companies that got the biggest taxpayer bailouts. Their cash compensation was cut even more sharply, by 90%, Treasury has said.

Reducing cash pay shifted a larger portion of the executives' compensation into company stock. Increasing stock-based compensation helps tie pay more closely to performance. If the company's fortunes rise, the stock is worth more.

However, the panel said stock grants by Feinberg's office were spread over too short a time to hold bankers accountable for their decisions. Awarding the stock over more years discourages risky bets that might create short-term profits.

Treasury officials say the department did everything Congress demanded in the law on executive compensation.

"Our first rulings cut total pay in half and slashed cash compensation by 90%," said Acting Assistant Secretary for Financial Stability Tim Massad. "A key goal of Treasury's actions was to make sure taxpayers were repaid in a timely manner, which is happening faster than anyone expected."