Pay Czar Limits Pay at 5 TARP Firms - Analyst Blog

U.S. Treasury’s pay czar Kenneth Feinberg said on Tuesday that the top 25 executives at five firms that received extraordinary government support under the Troubled Asset Relief Program (TARP) will get about 15% lower compensation in 2010 compared to 2009. The cash salaries would be cut on average by 33% from the 2009 levels.

After slashing 50% pay of the top 25 earners in Oct 2009 at seven firms that received substantial support from TARP, the pay czar imposed a new set of pay restrictions in Dec 2009. The primary intention of imposing the new set of restrictions was to enable the bailed out firms to repay government money by controlling excessive pay.

Since then, Citigroup Inc. (C) and Bank of America Corporation (BAC) have repaid their TARP loans and are no longer under the pay restrictions of the pay czar.

The latest pay restrictions will apply to the remaining five companies that include insurance giant American International Group (AIG), troubled automakers General Motors and its financing arm, GMAC Inc. (GJM) and Chrysler and its financing arm, Chrysler Financial.

Also, in order to judge the propriety of the richest pay packages of the past, the pay czar is planning to review the compensations of top 25 executives at 419 firms that received financial support from the government’s TARP program during the height of the financial crisis.

The intention of compensation review by the pay czar for the top executives at bailed-out firms including JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS) is to determine if any of that pay should be returned. The pay czar will review any pay more than $500,000 since Oct 2008, when firms started receiving TARP funds.

The pay czar wants to review the pay packages since according to a report filed in 2009 by the New York Attorney General Andrew Cuomo, 1,600 employees at JPMorgan received more than $1 million in bonuses, compared with 953 employees at Goldman Sachs and 428 at Morgan Stanley.

Most of the major institutions in the financial market like JPMorgan Chase and Co., Bank of America Corp., Wells Fargo & Co. (WFC) and Goldman Sachs Group Inc. have repaid the TARP loan. Also, the Treasury has started auctioning stock warrants acquired from the banks that received a significant portion of taxpayers’ money and have repaid in full.

We think that the repayment of government money and auction of warrants can be viewed as a sign of recovery of the institutions as well as the economy. According to the Treasury, losses on TARP investments are likely to be significantly trimmed with the improvement in the overall financial condition.