Pay czar issues salary caps for execs
Kenneth Feinberg limits pay to 500,000 for hundreds of employees at AIG, General Motors, Citigroup and GMAC.
NEW YORK (CNNMoney.com) -- New pay restrictions were unveiled Friday for hundreds of top employees at the nation's biggest bailout recipients, representing the latest effort aimed at protecting taxpayers' investment.
The ruling, issued by White House "pay czar" Kenneth Feinberg, will impact 75 out of the 100 highest-paid employees at four companies: Citigroup (C, Fortune 500), AIG (AIG, Fortune 500), automaker General Motors as well as GMAC.
The move, part of a broader effort by the Obama administration to protect the money American taxpayers poured into these companies earlier this year, would prevent employees at those firms from receiving base salaries of more than $500,000. At least half of that would have to come in the form of company stock, with the rest coming in cash.
"We want to minimize these runaway perks and other compensation practices," Feinberg said during a briefing in Washington with the media.
Feinberg's latest edict takes effect Friday and will not be retroactive. That means, for example, that a banker who was on track to make a $1 million base salary this year would see his or her paycheck adjusted in the final three weeks of 2009 to reflect a salary $500,000.
The guidelines, however, are expected to serve as the model for their pay next year as well.
Friday's announcement marks the second time that Feinberg has weighed in on executive pay at the country's biggest bailout firms.
In October, he cut pay packages for the top 25 executives at the seven companies that got federal bailout money more than once. At the time, he slashed their total compensation in half, shrinking salaries by 90% and transferring bonus payments into performance-based, longer-term stock options.
That review affected a total of 136 individuals. This time around, approximately 450 workers will have their pay plans scrutinized.
Executives at Chrysler and its financing arm Chrysler Financial were exempt, however, since all of their employees are on track to earn $500,000 or less, which is the cut-off for Feinberg's oversight.
The companies that have been subjected to these pay curbs argue that the government compensation restrictions have already prompted some of their top employees to look for work elsewhere.
They also contend that pay caps will hinder their companies' overall performance, making it difficult or impossible for them to pay back the billions of dollars in bailout funds.
Feinberg acknowledged Friday that those concerns were carefully considered in his latest review.
Nearly a dozen individuals "deemed to be very essential" will be granted paychecks of more than $500,000. Most of them will earn between $500,000 and $950,000 annually. Only one individual will get over $1 million. Feinberg would not reveal which companies these executives work for.
He was also quick to point out that discussions between his office and the companies' top brass was much more "cordial" this time around, unlike his last review.
AIG chief executive Robert Benmosche for instance reportedly got so upset about the pay curbs announced in late October that he threatened to quit the company. He later issued a statement saying he was "frustrated" with the government's compensation ruling but remained committed to AIG.
"There's been very little rancor," Feinberg said Friday. "I think there's general acceptance the process has worked quite well"
A spokeswoman for GMAC, echoed those sentiments, noting in a statement that its work with Feinberg's office was "constructive." She also added that the company was currently reviewing the details of the pay plans.
A Citigroup representative said the company planned to comply with new restrictions outlined Friday.
A spokesperson for AIG would not comment on Friday's announcement, and calls to General Motors by CNN were not immediately returned.
As part of the latest installment of pay curbs, Feinberg revealed that his office would have the final say on the size of a company's bonus pool as well as how it is allocated.
He stopped short of saying his office would determine how individuals were rewarded, adding that would be up to the company's board of directors.
"We do not want to micromanage these companies," he said in an interview with CNN's Ed Henry. "That is not what this office is all about."
Such restrictions may very well explain why large financial institutions have been so anxious to return bailout money to the government recently.
This week, Bank of America (BAC, Fortune 500) got out from under the government's thumb by repaying the full $45 billion in bailout money it received. The company's second-tier executives did not fall under Feinberg's purview as a result.
Citigroup has also reportedly been angling to pay back the billions of dollars in taxpayer aid it accepted over the past year.
Feinberg suggested Friday that the Obama administration's push to get compensation in line for this tiny group of companies was prompting changes elsewhere in corporate America.
On Thursday, Goldman Sachs (GS, Fortune 500) said the 30 executives who make up the firm's management committee will not receive cash bonuses this year. They also said shareholders would get an advisory vote on pay packages for its executives.
"That is precisely the type of impact that we at Treasury and the administration are hoping to have," said Feinberg.