Kenneth Feinberg, the Obama administration's pay czar, slashed executive pay at American International Group Inc. [AIG] and four other U.S. firms that still depend on government funds, claiming that the clampdowns are not resulting in talent leaving their posts.
Feinberg, a Washington lawyer who was appointed by President Obama to oversee pay at firms receiving taxpayer bailouts, cut 2010 pay for the highest-paid employees at those firms by an average of 15%, compared with 2009. Cash pay was cut 33% on average, the Treasury Department said. Feinberg is in charge of setting the pay packages for the 25 top earners at the five firms that received "exceptional assistance" from the government's $700 billion Troubled Asset Relief Program (TARP) and have not yet substantially repaid the funds.
Other than AIG, the firms include General Motors Co., GMAC, Chrysler Group LLC and Chrysler Financial. According to the Treasury, about 84% of the top earners under the pay czar's jurisdiction are still with their firms despite having their pay dramatically cut.
"People at these five companies are not leaving the companies to go elsewhere," Feinberg told a news briefing. "There are a striking number of holdovers."
The Treasury offered that statistic as evidence that Feinberg is navigating the precarious path of trying to soothe public anger over high paychecks underwritten by the taxpayer, while also trying to keep key talent at these firms.
Feinberg's rulings on Tuesday largely follow the formula he laid out for 2009 pay at the seven firms then under his jurisdiction. Bank of America and Citigroup have since repaid all or some government assistance, getting them out from under Feinberg's authority.
For his 2009 pay rulings, which applied to the last few weeks of the year, Feinberg slashed overall pay by 50%, and cash pay by 90%.
Feinberg Tuesday restated his general guiding principles, including eliminating guaranteed cash bonuses, rewarding employees with long-term restricted stock, and abolishing golden parachutes for executives leaving the company.
AIG had petitioned the Treasury, asking that 10 of its top 25 get more than $500,000 cash salary, an exception permitted under Feinberg's rules for "good cause." Feinberg agreed to five, according to the Wall Street Journal.
According to an analysis of two reports issued by Feinberg—in October and yesterday—that identify the top earners by employee ID numbers, several AIG executives appeared to see increases in annual cash salary above what Feinberg set for them late last year.
Of the eight employees who were part of both the 2009 and 2010 reviews, four saw cash salary jumps of at least $100,000, while the other four stayed flat. For all eight, overall compensation including cash, stock salary and long-term restricted stock either stayed the same or rose.
In addition, AIG went from having one person in the group Feinberg reviewed earning cash salary of more than $500,000—CEO Robert Benmosche—to five. Three of those people are making $700,000 a year, and one is making $1.5 million. Benmosche earns $3 million in cash a year.
The bulk of the new entrants to the top 25—12 out of 14—saw their overall cash compensation decrease by $23 million, according to statements made by Feinberg.
He noted that employees at AIG's Financial Products unit, known for its derivatives trades that harmed the company, have agreed to repay $45 million in retention payments. He said cash salaries at the unit will stay frozen, with one exception. One will receive a $450,000 salary "in light of his critical role," Feinberg said.