August 13th, 2009
01:29 PM ET
5 years ago

Bailed-out banks: Meet the pay czar

Obama pay czar Kenneth Feinberg is expected to weigh in on some pay packages in the next 60 days.
Obama pay czar Kenneth Feinberg is expected to weigh in on some pay packages in the next 60 days.

NEW YORK (CNNMoney.com) - Just how much is a rainmaker at a bailed-out bank really worth? Or a senior executive at a recently bankrupt automaker for that matter?

Such questions will soon be a subject of discussion at the White House as the biggest recipients of government aid begin submitting compensation plans for their top 100 employees to the Obama administration's recently appointed pay czar.

Seven companies - AIG, Chrysler, Citigroup, Chrysler Financial, Bank of America, General Motors and GMAC - are due to submit proposed employment contracts for their 25 highest-paid employees Friday. Compensation proposals for the next 75 most compensated employees are due by Oct. 13.

Kenneth Feinberg, the man charged with handling the task, is expected to rule on the first set of pay plans within the next 60 days. That information is due to be made public by Treasury sometime after, although any announcement may not include details of pay packages for individual employees.

Feinberg, a Washington attorney who first entered the public spotlight after overseeing compensation payments to September 11 victims, has already met with the seven firms to discuss some of the employee payment plans.

However, details of those talks have remained mostly under wraps, although there have been indications of a lot of back-and-forth between Feinberg's office and the institutions.

Citigroup, for example, has been working hard to claim that its agreement to pay star energy trader Andrew Hall $100 million this year is beyond Feinberg's authority, according to recent news reports.

Feinberg's authority, while broad enough to approve or deny proposed employment contracts, is more limited on bonuses and other retention awards promised before Feb. 17 of this year. Citigroup is claiming that Hall's compensation package is protected since his contract was signed before the law creating the compensation review program was established, according to the New York Times.

Thorny problems: Resolving the issue of Hall's pay would certainly clear a major hurdle for both Citigroup and Feinberg, who effectively serves as an adviser to the Treasury Department.

But experts contend that making determinations on the other 699 employees at these seven firms could very well be a very messy process, particularly as it relates to those workers at AIG, Citigroup and Bank of America.

Imposing too many restrictions could prompt more top performers to flee Citigroup and Bank of America, hampering the firms' ability to attract talent.

Both banks have already experienced a loss of talent in recent months, both to foreign firms such as Deutsche Bank and competitors such as JPMorgan Chase that are no longer beholden to government.

At the same time, the issue of excessive pay remains a rallying cry for lawmakers and taxpayers alike, who are still incensed over bonuses paid out to AIG executives earlier this year.

"It is a bit of a balancing act," said Claudia Allen, a partner at law firm Neal Gerber & Eisenberg and the chairwoman of the firm's corporate governance practice. "In some ways, how he deals with compensation will be a reflection of what the Treasury and the [Obama] administration finds to be appropriate or acceptable."

What's appropriate?: What the White House has offered so far in terms of what is proper and what isn't, has been limited.

When it outlined its pay restrictions for banks and other firms that got money under the Troubled Asset Relief Program in June, it decreed that any company that got help this year must limit bonuses for senior executives and other highly-paid employees to one-third of their total compensation.

At the same time, it absolved those employees making less than $500,000 in total annual compensation at those firms that were bailed out more than once, saying they would not be subject to scrutiny.

But that still leaves Feinberg's office with the difficult task of determining what is an appropriate mix of bonus, salary and deferred payments such as restricted stock that rise and fall alongside the firm's overall health, noted James Reda, a managing director of the compensation consultancy James F. Reda & Associates.

Critics have charged that banks, in particular, relied too heavily on short-term rewards such as bonuses in the years leading up to the crisis. That ultimately prompted employees to benefit from risky bets, such as those on the U.S. housing market, without suffering the consequences when the market unraveled years later.

Already, many financial firms have been placing greater emphasis on salary and other forms of restricted awards amid recent scrutiny from lawmakers and taxpayers alike.

But with the government taking a hard look at compensation, bailed-out firms may have little choice than to push even further on that front. That push could include instituting so-called "clawback" provisions to reclaim pay from some executives, as well as more stock-based compensation or even caps on bonuses.

"There are not many other ways to do it," said Reda.


Filed under: Obama administration • TARP
soundoff (53 Responses)
  1. Marilyn Caudell

    Obama and his czaristas are out to destroy profit-making in this country because they are at the least socialists, probably communists.

    August 13, 2009 01:34 pm at 1:34 pm |
  2. dominican mama 4 Obama

    I'm not totally sure because we've never had it before, but I think this is what a governmenet regulated loan must look like for big businesses; not the free-for-all-come-and-get-it-while-we-got-it that we had with the Shrub.

    The perfume of 'accountability' can be quite intoxicating to us average tax-paying Americans. Habit-forming even!

    Obama 2012.

    August 13, 2009 01:36 pm at 1:36 pm |
  3. Obama Pay Czar

    I guess that they will use that as a fund raiser for Obama campaigns also. You know we would love for that executive pay to be higher just donate to your favorite DNC candidate or ACORN – one of the two.

    August 13, 2009 01:38 pm at 1:38 pm |
  4. vs

    May God have mercy on each one of us !

    August 13, 2009 01:38 pm at 1:38 pm |
  5. southerncousin

    Imperialist Russia only had 18 czars, Hussein Obama has 32.

    August 13, 2009 01:40 pm at 1:40 pm |
  6. chelle

    Well given that the President of the US makes $400,000.00/year give or take, I'm thinking millions for any of these loons is over the top. Perhaps they should try working for a straight salary, no bonuses, and thus no reason to lie, cheat and steal from their customers and employees.

    August 13, 2009 01:40 pm at 1:40 pm |
  7. TCM

    The "Stupid 7" You should've filed for Bankruptcy! Now, since you've took money from Obama...he owns you! He'll decide who'll get paid what, what light bulbs to use...when to wipe your nose...Why? Because he's all about power and control; he could care less if you survive or not. However, more bad news....since you scoundrels took government money, and upset the public, it's going to be a "two-fer." Not only will you have Obama playing puppet master, you have a public not wanting to do business with you; as evident in the top 10 list citing Cash for Clunkers......GM you're toast......Bank of America...remember when you were giving home loans to illegals? Well, True Americans didn't forget it....you're toast too.... You supported this fraud of an administration, and now you're about to reap what you've sown!

    August 13, 2009 01:40 pm at 1:40 pm |
  8. Lee

    How did America since so low under Bush-Cheney republicanism that our biggest corporations shuddered and our banks and our entire system almost collapsed like a house-if-cards one weekend last October?
    Most people don't know how close we came.

    August 13, 2009 01:41 pm at 1:41 pm |
  9. mark

    The government needs to stay out of private enterprise, this is not the USSR!!! Why don't they cap sports stars pay since most stadiums they play in use tax payer money to fund construction. When will the madness end?

    August 13, 2009 01:41 pm at 1:41 pm |
  10. yuri

    Gigantic greed, gobbling up the CEOs, enerate great public anger and the Feds need to make sure that these financial giraffes stop gasconading about their gifted behavior of awardin' bonuses to themselves w/ impunity.

    August 13, 2009 01:42 pm at 1:42 pm |
  11. Bob of Lompoc

    We have a Minimum Wage. Why not a Maximum Wage ? Could be 1000 times the average hourly wage in a given Business Unit. Example: Say the Average Hourly Wage at "Dewey Cheatem & Howe Health Insurance Company" is $15/Hour. So, $15 X 1000 X 2080 Hours/Year = $31,200,000 Maximum Wage/Year. Can you live on that Mr. Corporate Executive ? Do ya think ?

    August 13, 2009 01:43 pm at 1:43 pm |
  12. nea-nea

    OH! its ok for the rich and the upper class to get bailouts which most are crooks and cheated their way up the ladder but what they will say is i worked my way up. But when it comes to the poor and the middle class we get bashed for wanting anything from the government .many of us want Health Care Reform but no the rich are scared they will have to be the ones who have to pay for it. Im not rich and i dont make a lot of money but im willing to help pay someone eles way to get Health Care Reformed. Some people out there wish they could find a good paying job and not have to depend on the government but right now they have to do what they can with what they have. You or your friends may not want this but what about the ones that really need healthcare right now and cant afford it.

    August 13, 2009 01:43 pm at 1:43 pm |
  13. DEB

    Hey now RATpublicans, Remember it was the Bush administration who didn't take care of HOME and gave out the first stimulus and left us in this mess!
    You can't blame the Obama administration for the mess that the Bush cronies left us to deal with.

    August 13, 2009 01:47 pm at 1:47 pm |
  14. No More Fear

    Jeez Louise Another Czar? Can we come up with a better job title than czar? Can we call him an administrator for Pete's Sake!!!

    August 13, 2009 01:49 pm at 1:49 pm |
  15. Dennis

    I am not sure about the Banks, but there should be policy limiting executive pay for all publicly owned corporations. A percentage limit of the lowest paid employee, like to old Japanese policy, would be good for starters. 50 times the salary of the lowest paid employee or contract employee should be good enough for any CEO. This would be incentive for company management to treat employees as assets, and reward them for productivity. If they want stock options, than let them buy them out of their salary on the open market. This would be a great incentive to MANAGE their company so the value the stock would go up. Currently they have every incentive to play golf and not mind the store, while they cozy up to the hand picked Board of Directors who sets their pay. Stock prices are manipulated without acounting for any underlying value. If we believe in Capitalism, then we need to get back to basics and get rid of the Las Vegas-Mafia mentality in the executive suites.

    August 13, 2009 01:52 pm at 1:52 pm |
  16. Walter

    If I remember my history correctly, much of the work of the New Deal was done by the "dollar a year" men.

    These were folks who were so wealthy already that they donated their efforts to the economic recovery for a dollar a year.

    Seems that their consciences wouldn't allow them to take a salary while others were suffering as result of the actions of people like themselves.

    Maybe the Obama administration should refer these people to some reading on the subject and then ask them what they think their salaries should be.

    August 13, 2009 01:53 pm at 1:53 pm |
  17. Buster, AZ

    Is the pay czar going after GE? Of course not, he is in the pocket of the Liar in Chief. Only sheep would believe that all Republicans are rich and the Dems are really looking out for you.

    August 13, 2009 01:53 pm at 1:53 pm |
  18. doug

    How arrogant of this stooge to tell private employees how much they can make. Mark my words, he will try to extend this to private companies who did not bite from the governments apple. Bobo needs to listen to the American people. We succeeded from a nation because we did not want a king, and this stooge now thinks we want one! A word of advice for Bobo: Go and read the US Constitution, then you will realize you have violated it and should be jailed! However, do not fear America, your voice is being heard!!!! Good news is Bobo's approval rating is not DOWN to 47%!!!!!!!!!!

    August 13, 2009 01:53 pm at 1:53 pm |
  19. sharon

    Since they were allowed to bankrupt this country on the LAST watch................................they do not deserve a compensation.

    Give them a tent and enough food for 1 month, no health insurance,no vehicle, no money,no credit cards...........................................

    let us see how long they last in the REAL
    World............................................................

    August 13, 2009 01:55 pm at 1:55 pm |
  20. Ted Tartaglia

    These bankers should have their pay regulated because most all banks have access to no interest loans from the federal reserve. When they pay back all the freebies they have received from the government, not just TARP funds, should they be allowed to set their own pay without supervision. These crybabies want the best of both worlds, access to unlimited funds at next to nothing rates, no regulation, and they get to refuse to make loans unless they earn exorbitant interest rates on the few loans they do make. Since the taxpayers own controlling interest in many banks, the taxpayers should control executive pay. It it time to put these self-serving thieves in in their place if not in jail. In my opinion, jail would be more appropriate.

    August 13, 2009 01:59 pm at 1:59 pm |
  21. Steve (the real one)

    Why am I hearing the Russian Ntaional Anthem while reading this?

    August 13, 2009 02:00 pm at 2:00 pm |
  22. Mich

    Why do they have to meet any CZAR. I guess the 10th amendment of the constitution means nothing to OBAMA. Who checked out this czar? Did he have to go throught the senate? Or does the balance of power mean nothing to Mr. Obama.

    August 13, 2009 02:00 pm at 2:00 pm |
  23. Pat F

    Boy, Czar is sure the right word. Here in the Soviet Socialist State of Obama, all pay must be cleared through Kommissar!

    August 13, 2009 02:01 pm at 2:01 pm |
  24. Melissa

    I really hope he tells them that any bonus' MUST be performance based.

    August 13, 2009 02:02 pm at 2:02 pm |
  25. Dean

    Well lets see lets start them out with say 20k a year, 1 week vacation after 12 months service, 7 paid holidays a year sounds fair

    August 13, 2009 02:03 pm at 2:03 pm |
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