The U.S. Treasury’s pay czar, Kenneth Feinberg, announced a new set of pay restrictions on top executives at four firms that have received substantial support from the Troubled Asset Relief Program (TARP). The primary intention of the Pay Czar is to enable the bailed out firms to repay government money by controlling excessive pay.
The new rule by the pay czar puts the cash compensation cap of $500,000 for the 26th to 100th highest-paid employees at the four firms for which he still oversees employee compensation. Also, according to the new rule, total cash may not exceed 45% of total compensation, with the remainder being paid in company stock.
The compensation plans of Citigroup Inc. (C), American International Group Inc. (AIG), General Motors and GMAC Inc. (GJM) continue to be under the jurisdiction of the pay czar. However, Chrysler and Chrysler Financial were not subject to the new rule as total pay for their second-tier executives does not exceed $500,000.
The guidelines cover 2009 salaries but will also set the framework for compensation next year. Previously, in October, the pay czar slashed 50% pay of the top 25 earners at seven firms that have received substantial support from the Government. The pay restrictions have caused significant negative vibes within AIG, where key employees, including CEO Robert Benmosche, have considered leaving several times.
Though Citigroup is planning to exit TARP, we don’t think it will be free from the pay czar’s scrutiny anytime soon. However, Bank of America (BAC) will be absolutely free from the pay restrictions as it has only recently repaid in full the $45 billion bailout money it had received from the TARP. The new rules will be applicable only to the rest of Dec 2009, but will be the baseline for 2010. The rules could also scale down 2009 bonuses.
With BofA’s payment, the total amount of TARP money repaid so far totaled $116 billion. The Treasury expects a total of $175 billion of TARP repayment by the end of 2010. The repayment of TARP money can be viewed as a sign of recovery of the institutions as well as the economy. The Government intends to use the repaid TARP funds to create new jobs and cut the nation’s fiscal deficit. Also, the full repayment of government money will enable the bailed out firms to protect their executive compensation packages.
Read the full analyst report on “C”
Read the full analyst report on “AIG”
Read the full analyst report on “GJM”
Read the full analyst report on “BAC”
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