March 23, 2010 -- Obama administration pay czar Ken Feinberg today announced sweeping new cuts in compensation for the top 25 executives at five companies receiving huge taxpayer bailouts: AIG, General Motors, GMAC, Chrysler and Chrysler Financial.
Feinberg said today that his rulings will result in overall cash pay for company officials to dropping an average of 33 percent from 2009 levels, while total compensation will decline 15 percent. Fewer than one in five executives will see cash salaries above $500,000.
Though Feinberg praised some compensation shifts made by individual firms, he said he didn't believe that Wall Street overall understands the need to change pay structures.
"I don't think Wall Street as a general institution gets the message. I don't think in American history they've ever gotten the message," he said. "There's always been historically a huge gap in perception between Wall Street and Main Street. That goes back to the founding of the republic. And I don't see that there's any major change."
"I'm hoping, however, that as a result of this initiative that I'm engaged in now pursuant to the law that Wall Street will begin to change the manner that it goes about compensating its high executive officials and there are some early signs that they are doing that," he said.
At AIG's Financial Products (AIGFP) unit -- the division of AIG largely blamed for the insurance giant's meltdown -- Feinberg froze cash salaries at 2009 levels for all employees except one.
As promised, AIGFP employees have repaid $45 million in 2009 bonuses. Feinberg said AIG CEO Robert Benmosche deserves "praise" for shepherding the repayment.
At GMAC, no cash salaries are above $500,000 and their CEO is receiving only stock. In what Feinberg called an "unprecedented step," GMAC is reserving issuance of TARP stock until the end of the year
Feinberg's rulings are retroactive to Jan 1, 2010. Next month, Feinberg is expected to issue decisions on compensation packages for the 75th through 100th-highest paid employees at the five firms.
The Wall Street firms and the automakers have argued that Feinberg's pay limits would cause a "brain drain," with employees leaving the companies to avoid the pay caps.
But Feinberg said today that of the employees who had their compensation capped by his rulings last year, 84 percent remained with their companies.
"I think if any single important piece of information comes out of my rulings today it is that 85 percent of individuals who are subject to my mandatory jurisdiction last year are still at their desks, still doing their job, and I think that says a great a deal about the fact that the impact of my compensation determinations and my reductions have not led to that type of brain drain," he said.
'Name and Shame'
Although Feinberg only has jurisdiction over these five companies, the pay czar is set to send a letter to all 419 firms that received money from the $700 billion Troubled Asset Relief Program (TARP). In the letter Feinberg is expected to request compensation data for the top 25 executives at these firms during the end-of-2008 bonus season. The goal is to examine pay packages for employees at these 419 firms who earned over $500,000.
While Feinberg has no power to set pay at these 419 companies, he could expose companies for paying out lavish sums of money as the firms took taxpayer aid in the wake of the financial meltdown. The "name and shame" strategy could ultimately result in firms returning bonuses or salaries.
"Do not underestimate the bully pulpit. The bully pulpit has worked well, I think, so far in what I'm doing," Feinberg said.
As required by the 2009 stimulus package, Feinberg will try to negotiate "appropriate reimbursements" to taxpayers if the payments are deemed "inconsistent with the public interest," he said.
"I have no enforcement authority as to this look back." Feinberg said, "All I can do is review the data and...go to any of those companies and request further information and reimbursement."
Feinberg said Bank of America and Citigroup, in addition to the five companies he set pay caps for today, will face "higher scrutiny," due to the large size of their federal bailouts.
The companies will be required to respond to Feinberg's letter within 30 days. It is expected to take another one to two months for Feinberg to complete his review and submit it to the Treasury Department.
In an interview with ABC News last October, Feinberg said he hoped that other companies outside his jurisdiction would adopt his pay guidelines.
"I'm hoping that…other companies will voluntarily see the wisdom of the way we've structured compensation – less cash, more long-term stock," he said. "Hopefully others will see the wisdom of this and follow suit."
Feinberg noted that his job demands that he try to find the middle ground between public anger at Wall Street and the financial firms' need to compete in a competitive industry.
"I've tried to balance both sides, listening carefully to what is said in the way of citizen anger and also the statute, which requires that these companies stay in business and thrive," he said.