U.S. To Order Bailout Firms To Cut Exec Pay
MICHELE NORRIS, host:
This is ALL THINGS CONSIDERED from NPR News. I'm Michele Norris.
MELISSA BLOCK, host:
And I'm Melissa Block.
It looks like some of those astronomical compensation packages for top executives may get a whole lot smaller. The Obama administration is set to dramatically cut pay at seven firms that all received federal bailout money. NPR has confirmed that the administration's pay czar Kenneth Feinberg will issue a plan in the next few days. It will cut cash payouts to the top 25 executives at each firm by an average of 90 percent.
NPR's John Ydstie is here with the details. And, John, remind us first of all, please, which firms we're talking about here.
JOHN YDSTIE: Well, the firms are Bank of America, Citigroup and AIG, plus GM and Chrysler and the two financing arms of those two car companies. There are firms that were deemed to have been given extraordinary help by the government and, therefore, Mr. Feinberg was given the authority to modify pay plans at the companies if he saw fit.
BLOCK: And a 90 percent cut in these cash payouts sounds really impressive, is it?
YDSTIE: Well, it is dramatic. However, at least some of the cut in cash compensation to these executives will be replaced with payments in stock. But it will be stock they must hold for five years before selling. The idea is to create incentives to make the companies profitable in the longer run.
Overall, the top 175 executives at the companies, for them the cut in compensation will be about 50 percent from 2008 levels. And some executives will be cut more and others less. And there will be executives at Bank of America, for instance, who will still receive compensation totaling in the millions of dollars.
BLOCK: Do the companies have an alternative other than to abide by this order from Kenneth Feinberg?
YDSTIE: Well, they could pay back the money they've taken from the government immediately, but for most, if not all of them, that would probably put them out of business. Individually, though, employees could just decide to leave the companies and hope to find a firm that will pay them better somewhere else. That's the concern of some critics who say it's actually in the interest of taxpayers to retain talented workers who can return these firms to profitability because that's the only way the government is going to get its money back.
BLOCK: Now, what about the huge bonuses, John? We've heard a lot of talk of this at some Wall Street firms. Will this move by the pays czar affect those bonuses, too?
YDSTIE: Well, they're not bound by what Feinberg has decided. Firms like Goldman Sachs and JPMorgan Chase, among others, have paid back the money they got during the financial crisis. They might choose to dial back for public relations purposes. But there are no restrictions on them. I think Feinberg's action representing the Obama administration here is a response to the growing anger over the prospect of those big bonuses that some of the banks that got government money used it to get healthy and are now returning to their old habits. And meanwhile, of course, unemployment continues to rise and most Americans are seeing their paychecks squeezed.
BLOCK: Okay, John, thank you very much.
YDSTIE: You're very welcome.
BLOCK: That's NPR's John Ydstie reporting on the Obama administration's plans to steeply cut executive pay at firms that receive bailout money.
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