Kenneth Feinberg, the special master at the Treasury Department, defends the Obama administration's decision to limit compensation for executives from the seven companies that received the most money in the government's $700 billion bailout of the financial system.
Kenneth Feinberg, the special master at the Treasury Department, defends the Obama administration's decision to limit compensation for executives from the seven companies that received the most money in the government's $700 billion bailout of the financial system. Charles Dharapak/AP
The U.S. Treasury Department on Thursday ordered seven companies that received billions of dollars in funds from the government's bailout of the financial system to halve total compensation for their top executives.
Kenneth Feinberg, the Treasury Department's special master for compensation, told reporters that starting next month, average salaries for the top 25 executives at the companies are being cut 90 percent. The companies affected are Bank of America, American International Group, Citigroup, General Motors, GMAC, Chrysler and Chrysler Financial.
Feinberg tells NPR's Melissa Block that the plan is a bid to dampen public outrage over large Wall Street pay packages, as well as a way to strengthen the institutions.
"I think what I've tried to do is to balance that outrage with the absolute priority to find a way to get these companies back on their feet so that they repay what they owe the taxpayer," Feinberg says.
The executives won't have to return compensation already received this year, but the reduced pay levels will be the base for making decisions on salaries in 2010. The executives will be subject to compensation limits as long as their companies are receiving support from the government's $700 billion bailout fund. Total compensation will be cut, on average, by 50 percent under the new plan.
"One of the critical aspects of what I tried to do was to vastly diminish the amount of guaranteed cash salary that would be paid these top officials, and instead require that these officials buy into stock that they must hold for a number of years before they can cash out," Feinberg says. "And if that stock is going to be valuable for them, then the overall performance of the company will have to improve."
Feinberg says he is obligated to enforce valid contracts for compensation that were entered into before the law was enacted creating the special master. Feinberg got the job as pay czar in June, when Congress amended the bailout law to require that executive compensation at companies getting exceptional assistance be curbed.
Under the plan announced Thursday, the pay restrictions for the seven companies will require any executive seeking more than $25,000 in special benefits such as country club memberships to get government permission. Feinberg says discussions with the companies were cooperative.
"I think that we went through a five-month process, which was extremely cooperative, and hopefully they are on board, and if not, they have a right to appeal and come back to me if they so desire," he says.
The plan was unveiled the same day the Federal Reserve announced a proposal under which the central bank, for the first time, would police banks' pay policies to ensure they don't encourage employees to take gambles like those that contributed to the financial crisis. The plan would cover even the banks that never received a bailout.