Executive Pay To Be Cut At Bailed Out Firms
RENEE MONTAGNE, host:
We're going to hear now about another group of people receiving compensation that many think is undeserved. We're talking about senior executives at companies that got huge government bailouts. The Obama administration is set to unveil a plan in the next few days that will slash compensation for top executives at the seven companies that received the most taxpayer money. The plan was developed by the Treasury's pay czar, Kenneth Feinberg. NPR's John Ydstie has more.
JOHN YDSTIE: The pay restrictions will apply to the top 25 executives at each of these firms: Bank of America, Citigroup and AIG, as well as GM and Chrysler and their financing arms. These are firms deemed to have been given extraordinary help by the government during the financial crisis. In fact, the government essentially owns about 80 percent of AIG and more than 30 percent of Citigroup. Dean Jeffrey Sonnenfeld of the Yale School of Management says Feinberg's pay restrictions are appropriate.
Mr. JEFFREY SONNENFELD (Yale University): I think that what's been leaked out there, if it's accurate, is appropriate and brilliant. He is taking away the sense of entitlements, but he is allowing bonuses for long-term incentives that could be quite remunerative.
YDSTIE: One provision in Feinberg's plan, according to a person familiar with the details, would cut cash payouts to top executives by 90 percent and replace them with payouts in stock. But the stocks would have to be held for five years before they were sold. That would provide an incentive for executives to focus on long term profitability. Also under the plan, executives at AIG's financial products division would be limited to $200,000 in total compensation, a huge cut for them. The financial products division traded in the derivatives that brought AIG down, and Feinberg will warn the company to significantly reduce the $200 million in bonuses it had promised employees in the division.
Feinberg's plan will restrict the pay of only 175 executives in total at the seven firms, a small fraction of the firms that got government help. Critics say the plan will drive away talented workers who the companies need to become profitable and repay taxpayers. Meanwhile, many Wall Street firms that got aid, including Goldman Sachs and JP Morgan Chase, have paid back the money. They're now making big profits again and planning to hand out extravagant bonuses. That's got a lot of taxpayers on Main Street angry. In comments at an event in Washington on Tuesday, Feinberg told an audience not to expect his plan to bridge the huge gap between Main Street and Wall Street.
Mr. KENNETH FEINBERG (U.S. Treasury Department): It is a formidable chasm that I'm not sure can be bridged, although the law requires me to attempt to bridge that chasm.
YDSTIE: The Obama administration's restrictions on pay at the seven companies may provide some public relations incentive for other Wall Street firms to trim their pay packages. The administration has already verbally chastised Wall Street for being out of touch with the rest of the country, where unemployment is nearing 10 percent and most Americans are seeing their paychecks squeezed. But Sonnenfeld says the government should not try to restrict Wall Street compensation in general.
Mr. SONNENFELD: We can't start to have the government come in and start to pick particular pay levels or pick different strategic investments that are a good idea or what products to offer over the rest.
YDSTIE: What the government needs to do, he says, is help strengthen shareholder rights so they can have a more direct role in rationalizing compensation at the firms they own.
John Ydstie, NPR News, Washington.