Pay czar ready to drop hammer
Kenneth Feinberg will demand average 50% cut in compensation for top earners at seven firms that received the most bailout funds.
NEW YORK (CNNMoney.com) -- The Obama administration will soon order the nation's biggest bailed-out companies to drastically cut the pay packages of 175 top executives, a senior administration official confirmed to CNN Wednesday.
Kenneth Feinberg, who was named the White House's pay czar in June, will demand that each of the seven largest bailout recipients lower the total compensation for their top 25 highest paid employees by 50%, on average, the official told CNN.
For the past two months, Feinberg has been reviewing pay plans at Citigroup (C, Fortune 500), AIG (AIG, Fortune 500), Bank of America (BAC, Fortune 500), General Motors, Chrysler, GMAC and Chrysler Financial in an effort to put these firms in a position to pay back bailout money as soon as possible.
Under the plan, which is expected to be officially released by the Treasury Department next week, annual salaries for executives at those seven firms are expected to fall 90%, on average, the official said.
Another source in the Treasury Department told CNN that Feinberg is "trying to strike the balance" between protecting taxpayers and allowing companies to have the ability to "grow their way out of TARP."
Some compensation experts have worried that the firms that have received the most bailout funds could wind up losing top talent to companies that have already paid back the government and are not subject to Feinberg's pay restrictions, such as JPMorgan Chase and Goldman Sachs.
According to other reports, the plan will come down particularly harsh on embattled insurer AIG. Within AIG's controversial Financial Products division, the unit that led to the company's near collapse, no employee is expected to receive more than $200,000 in total compensation, several reports indicated.
The Wall Street Journal also reported Feinberg is expected to demand a series of governance changes at the seven firms -- including splitting the role of chief executive officer and chairman.
The Treasury Department had no comment. AIG, Bank of America, Chrysler Financial and GM also declined to comment. Chrysler, Citigroup and GMAC were not immediately available for comment.
But the moves by Feinberg should not come as a major surprise. Last week, outgoing Bank of America CEO Ken Lewis said he would not accept a salary or bonus for 2009, and the bank said the decision came after Feinberg "suggested" it to Lewis.
Lewis' decision followed an uproar over indications that he is poised to walk away with a minimum of $53 million in pension benefits after he retires.
Lewis' cash salary has been $1.5 million annually since he took over as CEO in 2001. But he actually made $63 million in pay and perks over the past three years, according to filings -- including almost $10 million last year.
Other high-profile CEOs have also taken it upon themselves to act before the government did. Citigroup chief Vikram Pandit, for example, declared earlier this year that he would accept pay of just $1 a year and no bonus until his firm returned to profitability. Just a year ago, Pandit took home $10.8 million in salary, stock and options.