Posted on 11 Jun 2009
The Obama administration decided to eliminate its plan to propose capping salaries at $500,000 for executives at firms receiving large amounts of federal assistance but appointed a pay czar to review, reject and even set pay levels -- with no appeal.
Kenneth Feinberg, the administration's new "special master for compensation," will have broad authority over compensation for senior executives and the top 100 earners at American International Group Inc., Bank of America Corp., Citigroup Inc., General Motors Corp., GMAC LLC, Chrysler LLC, and Chrysler Financial. All seven companies got what the government calls "exceptional assistance" from the Troubled Asset Relief Program.
Mr. Feinberg's decisions won't be subject to appeal, and the Treasury Department said he will follow certain principles in making his decisions, including whether compensation rewards risk, allows a firm to remain competitive, is comparable to peers, tied to long-term performance and contributes to the value of the firm. Mr. Feinberg won't receive any government compensation himself.
"We felt that in cases where we're offering exceptional government assistance that we had a duty to the taxpayer to ensure that, even if the letter of the law had no restriction on overall salary, that there needed to be a review process to ensure that it was neither excessive, inappropriate or oriented to short term risk taking," said Gene Sperling, a senior counselor to Mr. Geithner.
Meanwhile, Treasury Secretary Timothy Geithner outlined his push to reform compensation practices at all firms, including those that didn't receive bailout funds, but shied away from imposing specific rules. Instead, the Obama administration issued voluntary compensation guidelines that tie pay more closely to long-term performance.
Mr. Geithner also said the White House will push legislation giving shareholders more power to vote on executive-pay packages at all firms and improving independence on boardroom compensation committees.