According to an overseer’s report released on Tuesday, the U.S. Treasury Department is pressing the bailed out insurer American International Group Inc. (AIG) to reduce $198 million in scheduled retention payments after the government missed the opportunity to defend against controversial bonuses to AIG employees last year.
The special inspector general of the government’s $700 billion bailout program, Neil Barofsky, said that Treasury official Kenneth Feinberg has not specified the amount by which retention payments should be reduced.
Feinberg is supervising pay practices at seven companies, including AIG, which received extraordinary government assistance. Though all the firms that received bailout money are subject to limits on their compensation practices, for these seven firms the situation is critical due to the special assistance they received from the Treasury.
The seven firms whose compensation plans are under scrutiny are American International Group, Citigroup (C), Bank of America (BAC), Chrysler Financial, Chrysler Group LLC, General Motors and GMAC Inc. (GJM).
After AIG was rescued with more than $180 billion of government money last year, it became a focal point for congressional and public anger over pay practices at government-supported financial firms when it was revealed earlier this year that it was offering millions of dollars in retention payments to its employees.
However, AIG is currently trying to repay its $85 billion loan from the government by selling off some of its assets.
In the course of the review of the aptness of the richest pay packages, the U.S. pay czar Kenneth Feinberg is planning to cut the annual cash salaries for many of the top executives whose firms accepted bailout funds.
As an alternative to paying large cash salaries, the pay czar is planning to shift a large portion of an employee’s annual salary to stock that cannot be accessed for several years. The percentage of salary to be diverted to stock is not yet clear, but it could be above 50% in some cases.
We think that the full repayment of government money will enable bailed-out firms to protect their executive compensation packages. Restrictions on pay rules as a result of using government money are a major competitive disadvantage for these firms in retaining talented employees.
Read the full analyst report on “AIG”
Read the full analyst report on “C”
Read the full analyst report on “BAC”
Read the full analyst report on “GJM”
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