Banks add 'pay czar' clause to contracts - source
Citigroup, Bank of America and AIG add a line to employment contracts such that compensation agreements are subject to the approval of the government.
NEW YORK (Reuters) -- Citigroup Inc., Bank of America Corp. and AIG are forging new employment contracts that let them void compensation agreements if they are challenged by the U.S. government, according to a person familiar with some recent contracts.
According to excerpts of contracts obtained by Reuters, banks recently began inserting clauses stating that the pacts are subject to the approval of the government's "pay czar." Compensation terms would also be subject to limitations or clawback provisions imposed by the U.S. Treasury, as well as other legal and regulatory requirements.
The clauses show how banks are trying to juggle competing demands of employees, who want the most pay possible, and government officials, who recognize that massive Wall Street bonuses do not play well on Main Street.
"If you enter into an agreement and the pay czar comes back and says, 'You can't pay that,' then you would be stuck between a contractual obligation to the individual and a legislative or government mandate," said Laura Thatcher, who leads the executive compensation practice at law firm Alston & Bird in Atlanta.
Citigroup (C, Fortune 500), Bank of America (BAC, Fortune 500) and American International Group Inc. (AIG, Fortune 500) declined to comment.
Lavish Wall Street compensation has come under intense public scrutiny since last fall, when Congress agreed to pump $700 billion of taxpayer money into banks, brokers and insurers gutted by the credit crisis.
Lawmakers and others have criticized banks that continued to earmark big bonuses and arrange luxury outings even as average Americans struggled with a slowing economy.
Employment contracts came into focus as banks, under pressure to slash pay, said some bonuses were mandated under pacts that could not be broken.
For example, AIG, the giant insurer swamped by credit derivative losses, forged ahead in March with paying $165 million in bonuses due to employees largely responsible for the company's losses.
During the past month, media reports have questioned how Kenneth Feinberg, the Obama administration's pay czar, will handle the matter of Andrew Hall, an energy trader with Citi's Phibro unit who is expected to make $100 million this year.
Citi, Bank of America, AIG, Chrysler Financial, Chrysler Group LLC, General Motors Co. and GMAC Inc. -- all still locked in the U.S. Treasury's Troubled Asset Relief Program -- have submitted proposed compensation plans for their 25 highest-paid employees. Feinberg is reviewing the proposals.
Some banks contend they will lose key personnel if Feinberg takes a hard line to curb outsized bonuses.
One new contract reviewed by Reuters requires employees to "sign a waiver of any claims against the United States ... and the company, and the respective directors, officers, employees and agents of ... the company."
Another contract said "any payment of any kind" must comply with the Emergency Economic Stabilization Act of 2008, the law that provided the funds to shore up weakened banks.
AIG's offer letter to Robert Benmosche, the firm's new CEO, included the disclaimer that his compensation was subject to the "formal review and approval" of the pay czar and any other "applicable regulations," according to a regulatory filing.
"You may receive compensation from AIG only to the extent that it is consistent with those regulations," the letter said. 
