Pay czar Kenneth Feinberg has put a cap on the compensation for top executives at auto finance company GMAC Inc. (GJM), which continues to post losses without any likelihood of repaying the $16.3 billion of funds that it had received under the Troubled Asset Repurchase Program (TARP).
Michael Carpenter, a 62-year-old ex-Citigroup Inc. (C) executive was appointed as the CEO of GMAC in November 2009. He had been on the board since May 2009. Carpenter will only receive compensation in the form of stock and no cash in 2010. In 2009, he earned $1.2 million. Only one of the top 25 executives will earn more than $500,000 in cash, thereby restricting the salary of the remaining 24 executives.
GMAC has been reporting losses in 9 of the past 10 quarters and hasn’t had a profit since the final quarter of 2008. The company posted a record $3.9 billion loss in the fourth quarter and lost $10.3 billion for full year 2009.
Kenneth Feinberg, the Obama administration paymaster, is dictating these salary caps because of the company’s involvement in TARP. The U.S. Treasury owns 56.3% of GMAC.
Since taking over, Carpenter has written down legacy mortgage assets, reclassified others for sale and funneled additional capital into GMAC’s mortgage and retail banking businesses. In February, GMAC raised $2.0 billion from a bond sale, the first time it was able to raise money without government backing since May 2007.
The extraordinary federal help GMAC has received underscores the auto lender’s role in federal efforts to revive General Motors and Chrysler. Traditionally, GMAC has served as the financing arm for General Motors’ vast network of dealers and thousands of car buyers. But the company’s Residential Capital unit branched out into subprime mortgage lending.
The company has been facing operating losses due to souring subprime mortgages and other real estate loans it made at the height of the housing bubble. This, along with the drop in auto sales demand, pushed the company further into red.
Other companies that continue to use TARP money are American International Group Inc. (AIG), General Motors and Chrysler. Top executives’ compensations for all these companies are regulated by the pay czar.
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