Pay Czar to Review TARP Firms' Pay - Analyst Blog

In order to judge the propriety of the past richest pay packages, the U.S. Treasury’s pay czar Kenneth Feinberg is planning to review the compensations of top 25 executives at 419 firms that received financial support from the government’s $700 billion Troubled Asset Relief Program (TARP) during the height of the financial crisis.

The intention of the compensation review by the pay czar for 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 because 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.

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.

The new rule of the pay czar places the cash compensation cap of $500,000 for the 26th to 100th highest-paid employees at the TARP firms that received exceptional assistance.

Most of the major institutions in the financial market like JPMorgan Chase and Co., Bank of America Corp. (BAC), Wells Fargo & Co. (WFC) and Goldman Sachs Group Inc. have repaid the TARP loan. Also, the Treasury has started auctioning stock warrants it 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.