Washington's incredible shrinking pay czar

NEW YORK (CNNMoney.com) -- The reign of Washington's "pay czar" could soon be coming to an end.

Kenneth Feinberg was tapped by the Obama administration last summer to take an axe to executive paychecks at the nation's biggest bailed-out companies -- AIG (AIG, Fortune 500), Citigroup, Bank of America, General Motors, GMAC, Chrysler and Chrysler Financial.

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White House "pay czar" Kenneth Feinberg

And he surely has. Just ask AIG CEO Robert Benmosche, who's been one of Feinberg's most vocal opponents.

But recent developments suggest that Feinberg's authority may be winding down much sooner than anyone anticipated.

Within the last week alone, two of those seven companies - Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500) - announced deals with the U.S. government to return billions of dollars owed to taxpayers. That means that neither firm will have to have their executive pay plans approved by him.

Embattled automaker GM could be the next outfit to escape from Feinberg's grip. CEO Ed Whitacre said Tuesday said the company will pay off a $6.7 billion federal loan by June. The company originally had two years to repay the funds, but administration officials have been coy however about whether such a move would remove GM from Feinberg's purview.

Companies have no doubt been scrambling to get out of the government's Troubled Asset Relief Program because they want to avoid the executive compensation curbs that they contend are making their firms less competitive.

"Feinberg's job is to make himself irrelevant and provide a lot of motivation for people to get out of TARP," said Nell Minow, the co-founder of The Corporate Library, a corporate governance research firm.

He was tasked with reviewing pay plans for the top 100 executives at each of the seven companies to make sure they weren't excessive. In October, he cut total compensation for the top 25 executives at the seven firms by a whopping 90%.

But his latest decree reveals just how quickly his mission, which once struck fear into the hearts of bankers and auto execs everywhere, is shrinking.

Last week, Feinberg issued his second major ruling, in which he capped salaries for second-tier executives at $500,000 each.

That edict applied to just four companies. Workers at both Chrysler and Chrysler Financial were exempt from any sort of oversight in Feinberg's second ruling simply because they didn't make enough money to warrant a review.

Feinberg's next review, which will focus on 2010 pay packages when it is released in February, will likely attract even less attention given the absence of Citigroup.

Still, there is plenty more for him to do.

"I don't think that Feinberg has exited the stage altogether," said Graef Crystal, an independent executive compensation consultant.

Insurance giant AIG alone still owes U.S. taxpayers $62 billion, even as the company has turned a profit for the last two quarters.

And yet, the embattled firm has been reluctant to abandon its rich pay packages. Several high-ranking employees reportedly threatened to quit ahead of Feinberg's latest ruling.

It's also unlikely that the auto-related companies in TARP will be able to return bailout money to taxpayers anytime soon., which will keep them under Feinberg's thumb.

Regardless of Kenneth Feinberg's official role, his tenure has clearly made a difference in at least one boardroom.

Last week, Goldman Sachs (GS, Fortune 500) nixed cash bonuses for the 30 executives that make up the firm's management committee, including company CEO Lloyd Blankfein. The company, which long ago repaid its bailout funds, also said it would give shareholders a vote in determining pay packages for its executives next year.

Of course, the move will only affect a handful of Goldman's 32,000 employees, but it's a start.

"That is precisely the type of impact that we at Treasury and the administration are hoping to have," Feinberg said Friday.