A watchdog says private executives and Treasury officials pressured a top government official to allow seven banks and businesses to bypass pay restrictions established in the $700 billion bailout.
Pay czar Kenneth Feinberg approved salaries for five executives in excess of the $500,000 limit, according to a report Tuesday issued by the deputy special inspector general for the bailout fund said.
Feinberg also approved pay packages, which included stock and other forms of compensation, worth $5 million or more for 49 executives, the report says.
Treasury wanted to allow competitive salaries so companies could keep top executives and be in shape to repay the bailouts, says the report by Christy Romero, the deputy special inspector general.
Feinberg, who was appointed by the Obama administration in 2009, was "under conflicting principles and pressures" during his 14-month tenure, the report says.
In an interview Tuesday, Feinberg said the law creating his position "was extremely conflicting and extremely ambiguous." His mission was to determine appropriate compensation for bailed-out companies, while Treasury was focused on recouping the taxpayers' investment, he said.
The idea was to limit compensation but not so drastically that companies would be hampered and unable to repay the funds, he said.
The report reviewed executive pay at American International Group Inc., Citigroup Inc., Chrysler Financial Services Americas, Chrysler Holding, General Motors Corp., Ally Financial Inc. and Bank of America Corp.
Feinberg approved salaries exceeding the $500,000 cap for CEOs at six of the companies. The exception was the retiring CEO of Bank of America Corp., Kenneth Lewis, which met the limit.
The seven companies received the biggest amounts of aid in the bailout, which included about 700 financial companies and automakers.
In one case, Ally CEO Michael Carpenter told Romero's auditors, there was an executive at the company who was compensated $1.5 million a year, including $1 million in salary.
Cutting salaries to $500,000 made them "cash poor," Carpenter said.
"This individual is in their early 40s, with two kids in private school," Carpenter was quoted as saying. "We were concerned that these people would not meet their monthly expenses due to the reduction in cash."
Ally officials opposed pay reductions despite Feinberg's concerns that most of the company's top 25 employees "were part of the problem that resulted in the need for a bailout," the report said.
In a letter to Romero, Treasury officials said they wanted to keep salaries competitive to protect taxpayers' investment. And Feinberg cut total compensation at the seven companies by half and cash compensation by 90 percent, they noted.
Some lawmakers had expressed similar criticism that Feinberg hadn't been aggressive enough in cracking down on pay.
Feinberg announced in July 2010 that he wouldn't try to recover $1.6 billion in compensation given to top executives at 17 bailed-out banks. While he said he thought the banks had made "ill-advised" payments, he decided not to try to force repayment of the money.
Feinberg said in a final report in 2010 that he thought his work had helped reform compensation policies.