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. single mom

    Another czar? Why? Unless Obama's trying to have more than the Russians did.

    I can agree with no 'golden parachutes' especially if an executive didn't manage/run effectively, efficiently and ethically. Millions of dollars for being the head of the a company that lost millions or billions doesn't make sense to me. But that is up to the stockholders. NOT the federal government.

    August 13, 2009 02:04 pm at 2:04 pm |
  2. donttreadonme

    Something just doesn't seem right about the Feds telling private companies how much they can pay their employees. What if they don't listen are they arrested?

    August 13, 2009 02:05 pm at 2:05 pm |
  3. conniesz

    I have no problem with paying large salaries to valuable employees. What I have a problem with is a "bonus" that is guaranteed. I think any company that has not paid back the US government every last cent they received should be required to link any bonus pay to actual performance. That doesn't seem like a crazy request to me – otherwise it's just a larger salary with a bonus payment for sticking around until the bonus gets paid – not what most of us have in mind when we think of "bonus".

    August 13, 2009 02:09 pm at 2:09 pm |
  4. Johnny DC

    Goodbye, capitalism.

    One day historians will look back on how the United States of America dominated the world from the 1800's through the early 21st century, but with the end of free capitalism, the decline made her just another has-been country.

    August 13, 2009 02:10 pm at 2:10 pm |
  5. Jimmy the Greek

    WOW....

    For 8 years all we heard from liberals was "No-Bid Contracts" and howling about "Corporate Welfare".

    Ummmm can any of you intellectually-HONEST liberals explain exactly how THIS Obama-approved, Democrat-sponsered bail-out is ANY different????

    Had the Free Market been properly employed – these CEOs and companies would have worked it out themselves: bankrupcy, takeover, or some other means.

    Instead – WE (taxpayers) are "floating" billions of corporate welfare loans.

    GEE – exactly WHEN did Obama ever run a business and understand the nuances of making payroll??

    OH THATS RIGHT ... never!

    August 13, 2009 02:12 pm at 2:12 pm |
  6. Scott, Tucson

    If this isn't a taste of commie socialism I don't know what is. Government has no business dictating to private companies on how their employees should be compensated. Maybe this czar ought to take a look at the pay scales of the upper echelon of the Postal Service and readjust those executive salaries for starters.

    August 13, 2009 02:14 pm at 2:14 pm |
  7. Randolph Carter, the wacky liberal moonbat

    Can I be the beer czar? Have a nice day!

    August 13, 2009 02:16 pm at 2:16 pm |
  8. Ken

    If they have chosen to use 'my' money to bail themselves out of their self-generated mess, then they need to take 'my' management advice. In this county I am represented by 'my' government, and with this administration we finally have a government with ALL of our best interests at heart. So, as long as they have 'my' money, they can deal with 'my' paymaster. Once 'my' money is returned to 'my' government, they can return to their stupid ways, if they wish, including overpayment of underworked executives at the top....if that's what they think makes them so competitive in the private free market place.

    August 13, 2009 02:19 pm at 2:19 pm |
  9. doug

    How about those new foreclosure numbers today. I see foreclosures are up 7%, and up 32% compared to this time last year. I guess Bobo's plan to help homeowners has also FAILED. I guess this plan and his stimulus plan had the same results. Can't wait to see Bobo's plan for healthcare!

    August 13, 2009 02:21 pm at 2:21 pm |
  10. Mississippi Mike

    It's a good thing that Obama isn't a socialist because appointing a "czar" to federally mandate employee compensation in an industry the government took over would certainly make someone look like a socialist. I guess there's nothing socialist about socialism.

    August 13, 2009 02:21 pm at 2:21 pm |
  11. Jenn, Philadelphia

    And the goverment just keeps growing and growing... How many new government positions and employees has this Administration created in just 6 months? Ridiculous!

    August 13, 2009 02:23 pm at 2:23 pm |
  12. Dutch/Bad Newz, VA

    I've heard the complaints from mainly those on the right about bailing out the banks and how it was such a bad idea. Yet they never mention that Bush initiated TARP 1, and Obama had TARP 2. As you can tell from the stabilization of these institutions, TARP 2 is being more wisely than TARP 1 was. Then I hear the complaints about the czars. So I guess the right wingers don't mind executives making multi-million dollar salaries? I thought you guys were upset that we bailed the banks out.

    August 13, 2009 02:28 pm at 2:28 pm |
  13. Dems need to make this public

    As we are dealing with taxpayer funded companies here, the compensation discussions and decisions need to be made public.

    August 13, 2009 02:30 pm at 2:30 pm |
  14. Henry Miller, Libertarian

    What companies pay their employees isn't the proper concern of the Federal government. It is, on the other hand, the proper concern of shareholders of public companies.

    I don't know why executive compensation in the US is, apparently, not subject to stockholder approval, nor which agencies of which levels of government are in charge of setting the rules for public companies, but it seems to me that requiring such approval would do a lot toward eliminating the insane compensation some CEOs seem to be getting.

    (Generally speaking, I oppose government meddling in business–except when corporations undertake to cheat people. As far as I'm concerned, the mutual back-scratching by which executive compensation seems to be set is just a means of cheating stockholders out of the money wasted in absurd levels of compensation. Money on the scale of what some of these people are paid would be far better spent in reinvestment in the company, on research, or on anything else that actually provides stockholders a greater return on their investment.)

    August 13, 2009 02:31 pm at 2:31 pm |
  15. Billy from NC

    A "pay czar". In the United States of America.

    And CNN reports this like it is business as usual, run-of -the-mill everyday thing to have a PAY CZAR of our great country.

    Strange days indeed..... keep eyes and ears open.... don't sit with back to the door.....

    August 13, 2009 02:35 pm at 2:35 pm |
  16. Dan Holiday

    Just what we need. Another presidential appointee that gets a high paying job without having the advice and consent of the Senate. How many Tzars are there now? This is just another way Obama subverts the Congress to achieve his ends. What a disgrace this man is. Vote him out. He is the worst president in the history of this once great country.

    August 13, 2009 02:36 pm at 2:36 pm |
  17. Scott

    Several thougts come to mind:
    1. Will the final compenstion plans become public record? As taxpayers, we have the right to know how our tax dolloars are bine used realtive to the executive compensation or how their compensation is tied ot the use of our tax dollars.
    2. If these escutives feel that they are being restricted to much, they undrstand what a "free market" economy is. let them try to find a job that pays them what they are seeking elsewhere. It's not likely they will find one since they helped destry to jobs market.
    3. These financial instituions and Wall Street are still operating "business as ususal" they have implemented n o reforms and continue ot demostrate a disregard of both public sentiment and the reality of the current economy.

    August 13, 2009 02:38 pm at 2:38 pm |
  18. Scott

    1. Will the final compensation plans become public record? As taxpayers, we have the right to know how our tax dollars are being used relative to the executive compensation or how their compensation is tied to the use of our tax dollars.

    2. If these executives feel that they are being restricted to much, they understand what a "free market" economy is. Let them try to find a job that pays them what they are seeking elsewhere. It's not likely they will find one since they helped destroy to jobs market.

    3. These financial institutions and Wall Street are still operating "business as usual" they have implemented no reforms and continue to demonstrate a disregard of both public sentiment and the reality of the current economy.

    August 13, 2009 02:40 pm at 2:40 pm |
  19. Wake Up

    This Czar garbage is a violation of the constitution. They are approved by Congress, have no oversight and shouldn't be allotted a budget. This President has no regard for the constitution. Obama really believes he's a dictator. Come 2012, he will quicky find out he's not.

    August 13, 2009 02:42 pm at 2:42 pm |
  20. George

    When is Obama giving his book fees back? He made an exhorbitant amount, and he was writing about his times as a politician. He got rich off the backs of the American's he was supposed to be representing.

    Sounds unethical. He should be publicly shamed.

    August 13, 2009 02:44 pm at 2:44 pm |
  21. DLHanna

    Do these people understand that they have to pay back all the money they asked for to help bail them out? That was the rule, and it wasn't in the fine print.

    August 13, 2009 02:45 pm at 2:45 pm |
  22. makesUwonder

    So, His Royal Highness appoints another "czar". If there is one thing this administration is very good at, it's spending the money of the hard working tax payer.

    August 13, 2009 02:46 pm at 2:46 pm |
  23. GOP Obama Supporter

    I'm a little nervous about the gov't approving pay structures. Personally, I think the people who have been running these companies are overcompensated for their stupidity, greed, obtuseness, etc, but the gov't having a say? But, if the board of directors (Stepford directors) don't stop it & the stockholders can't (or won't) stop it, then what? TARP has really opened a can of worms..proof that major gov't initiatives should be entered into with debate and thought, not rushing into uncharted territory.

    August 13, 2009 02:49 pm at 2:49 pm |
  24. Wake Up

    i think someone needs to sue the Obama administration over these Czars. He's running an undercover government.

    August 13, 2009 02:49 pm at 2:49 pm |
  25. tee

    Finally, somebody watching over these over-paid crooks.......I love my President.......repugs baseless and factless comments in 3,2,1.....oh I forgot their weak cries of socialism will also be mentioned.

    August 13, 2009 02:56 pm at 2:56 pm |
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