Posted on 28 Oct 2009
Treasury Department pay czar Kenneth Feinberg last week announced sharp cuts in total compensation at the finance and auto companies under his control. But while he cut total compensation by half, he substantially increased one important element -- regular salaries, according to a Wall Street Journal analysis. The move reflects the complexity of regulating something that mixes politics and economics.
Mr. Feinberg oversees seven firms that accepted bailout packages: American International Group Inc., Citigroup Inc., Bank of America Corp., General Motors Corp., GMAC Financial Services, Chrysler Group and Chrysler Financial. The Treasury Department assigned him the job of tying more compensation at the companies to long-term performance and cutting pay deemed "excessive."
Government officials say Mr. Feinberg met that objective. All 136 employees and executives working at the seven companies under his review will earn much less this year than in 2008, even after accounting for the rise in regular salaries, also known as base salaries.
But when the banks complained, Mr. Feinberg listened. He adjusted base salaries for the bulk of those employees, in some cases boosting them by hundreds of thousands of dollars, according to an analysis of government data by the Journal.
On average, base salaries climbed to $437,896 a year as a result of Mr. Feinberg's review, compared with $383,409 previously, a 14% increase, according to a Journal analysis of Treasury data. Of the 136 employees under Mr. Feinberg's review, 94 saw their base salaries increase.
At Citigroup, which is 34%-owned by the U.S., government, Mr. Feinberg agreed to more than double salaries for 13 of the 21 employees, according to the Journal's analysis.
Treasury Department officials confirmed the accuracy of the Journal's methodology and its calculations.
The increases, which weren't discussed by the Treasury or Mr. Feinberg last week, offset the total cuts by only a small amount. But they reflect the economic reality of Mr. Feinberg's task: He had to address public ire against large pay packages and political pressure to crack down on bailed-out firms without damaging these companies' ability to pay and retain key employees -- something Mr. Feinberg was explicitly charged with doing. They could also arouse the ire of Congress.
Government officials said they agreed to raise some base salaries after companies said Mr. Feinberg was planning to lock up too much of their employees' compensation for the long term. Two government officials said companies pushed back against Mr. Feinberg after he told them only a portion of the new long-term stock he created could be sold after two years. It can be sold in increments after two, three and four years.
Officials with some of the companies confirm they urged Mr. Feinberg to boost base salaries, complaining that his proposed restrictions would deprive their employees of needed cash. Others said they wanted higher base salaries to prevent key employees leaving.
The Treasury appointed Mr. Feinberg as the Special Master for Compensation with the stated goal of cutting compensation he deemed not in the public interest, and changing the way employees were paid, specifically by shifting compensation into long-term payments tied to company performance.