Obama orders pay cut for execs at rescued firms

[Savonarola]

The party's over 

Obama orders pay cut for execs at rescued firms
BY GREG GARDNER
FREE PRESS BUSINESS WRITER

The top 25 executives at General Motors Co., Chrysler Group LLC, GMAC and Chrysler Financial could face pay cuts under the Obama administration's latest plan to rein in compensation to companies that still owe billions to the government.

Kenneth Feinberg, who reviews executive compensation for the U.S. Treasury Department, has ordered cuts in the total pay for the top 25 executives at seven companies receiving the most federal aid. A department spokeswoman said Feinberg would make an announcement soon and declined to comment further.

Banks and insurance giant AIG could suffer the brunt of the cuts, while GM and Chrysler may face minor adjustments. GM has already reduced Chief Executive Officer Fritz Henderson's 2009 pay by 27% from last year, to $1.26 million. Chief Financial Officer Ray Young is to receive $720,000, or 15% less than in 2008.

AIG, whose underwriting of risky credit default swaps triggered the financial meltdown, received more than $180 billion in taxpayer assistance, more than three times what GM received and more than 20 times Chrysler's aid.

Some execs exempt from pay cuts

The Obama administration is slashing executive pay at two beleaguered banking giants and derivative kings AIG, but leaders at General Motors Co. and Chrysler Group LLC will have to make sacrifices, too.

GM, Chrysler, GMAC and Chrysler Financial have known for months that 2009 pay for their top 25 executives could be cut; it was a condition of the federal loans that helped the automakers through their bankruptcies. GMAC and Chrysler Financial received government loans to help jump-start lethargic new-car sales in the wake of last fall's credit freeze.

Kenneth Feinberg, who reviews executive compensation for the U.S. Treasury Department, is responding to public outrage over the resumption of lavish bonuses at banks such as Goldman Sachs and J.P. Morgan Chase. But neither of those institutions will be subject to the pay cuts because they have already repaid the billions they borrowed under the Troubled Asset Relief Program.


For Chrysler in particular, Feinberg's actions could trigger unintended consequences.

The sale agreement that granted Fiat 20% ownership of Chrysler exempted Fiat executives who took on responsibilities at Chrysler from any government-set compensation limits. That would include Chief Executive Officer Sergio Marchionne and Olivier Francois, the newly promoted president and CEO of Chrysler brand. Marchionne's total compensation for 2008 was 3.05 million euros, or $4.5 million, according to a McGraw-Hill profile.

But any of the top 25 who stayed with the Auburn Hills automaker during the dark days before and during its wrenching 41-day bankruptcy restructuring could see their pay cut, just as Marchionne is trying to build teamwork between Americans and Europeans.

Although Feinberg is expected to provide details of the compensation cuts later this week, reports that the average executive pay package at the seven companies would be cut by 50% overlook what likely will be significant differences in his treatment of banks and automakers.

A Treasury Department spokeswoman declined to comment.

The deepest cuts will come at the financial products division of AIG, according to the New York Times. That operation was at the epicenter of last fall's financial meltdown when it failed to pay on trillions of dollars of risky derivative investments linked to delinquent home mortgages. U.S. taxpayers have given more than $180 billion to bail out AIG.

No executive in that unit will receive more than $200,000 in total compensation, according to a person familiar with the plan. That's a stunning comedown for people who regularly made at least 50 times that.

At GM and Chrysler, many executives have already seen significant pay cuts.

GM said CEO Fritz Henderson will be paid $1.26 million for 2009, or about 27% less than he received in 2008. Chief Financial Officer Ray Young's pay has dropped about 15%, to $720,000.

Chrysler has sent Feinberg a compensation plan for its top 25 people that was "developed in a manner both consistent with our traditional compensation practices and responsive to the current financial position of the company," the company said in a statement.

[derspiess]

Centrally-planned economies tend to do really well, right? 

[MadBurgerMaker]

The deepest cuts will come at the financial products division of AIG, according to the New York Times. That operation was at the epicenter of last fall's financial meltdown when it failed to pay on trillions of dollars of risky derivative investments linked to delinquent home mortgages. U.S. taxpayers have given more than $180 billion to bail out AIG.

No executive in that unit will receive more than $200,000 in total compensation, according to a person familiar with the plan. That's a stunning comedown for people who regularly made at least 50 times that.

Aren't pretty much all the people still working there people who didn't really have much to do with the whole...fucking up...thing (at least at the higher levels)?  As in...competent people?  I, obviously, don't really know much about this stuff, but what's keeping some other company from coming along and offering them a million bucks a year, them taking the offer, and leaving AIG with the relative scrubs?  Some sort of contracts or something?

[alfred russel]

The deepest cuts will come at the financial products division of AIG, according to the New York Times. That operation was at the epicenter of last fall's financial meltdown when it failed to pay on trillions of dollars of risky derivative investments linked to delinquent home mortgages. U.S. taxpayers have given more than $180 billion to bail out AIG.

No executive in that unit will receive more than $200,000 in total compensation, according to a person familiar with the plan. That's a stunning comedown for people who regularly made at least 50 times that.

Aren't pretty much all the people still working there people who didn't really have much to do with the whole...fucking up...thing (at least at the higher levels)?  As in...competent people?  I, obviously, don't really know much about this stuff, but what's keeping some other company from coming along and offering them a million bucks a year, them taking the offer, and leaving AIG with the relative scrubs?  Some sort of contracts or something?

I think that ship has already sailed.

[Faeelin]

Aren't pretty much all the people still working there people who didn't really have much to do with the whole...fucking up...thing (at least at the higher levels)?  As in...competent people?  I, obviously, don't really know much about this stuff, but what's keeping some other company from coming along and offering them a million bucks a year, them taking the offer, and leaving AIG with the relative scrubs?  Some sort of contracts or something?

I'm not sure there are a bunch of people looking to hire the successful executives of AIG.

[Warspite]

The deepest cuts will come at the financial products division of AIG, according to the New York Times. That operation was at the epicenter of last fall's financial meltdown when it failed to pay on trillions of dollars of risky derivative investments linked to delinquent home mortgages. U.S. taxpayers have given more than $180 billion to bail out AIG.

No executive in that unit will receive more than $200,000 in total compensation, according to a person familiar with the plan. That's a stunning comedown for people who regularly made at least 50 times that.

Aren't pretty much all the people still working there people who didn't really have much to do with the whole...fucking up...thing (at least at the higher levels)?  As in...competent people?  I, obviously, don't really know much about this stuff, but what's keeping some other company from coming along and offering them a million bucks a year, them taking the offer, and leaving AIG with the relative scrubs?  Some sort of contracts or something?

I guess that would put them in line with the reality every other firm has to deal with.

[dps]

The deepest cuts will come at the financial products division of AIG, according to the New York Times. That operation was at the epicenter of last fall's financial meltdown when it failed to pay on trillions of dollars of risky derivative investments linked to delinquent home mortgages. U.S. taxpayers have given more than $180 billion to bail out AIG.

No executive in that unit will receive more than $200,000 in total compensation, according to a person familiar with the plan. That's a stunning comedown for people who regularly made at least 50 times that.

Aren't pretty much all the people still working there people who didn't really have much to do with the whole...fucking up...thing (at least at the higher levels)?  As in...competent people?  I, obviously, don't really know much about this stuff, but what's keeping some other company from coming along and offering them a million bucks a year, them taking the offer, and leaving AIG with the relative scrubs?  Some sort of contracts or something?

I guess that would put them in line with the reality every other firm has to deal with.

No, every other firm would have the possibility of matching the pay that might be offered to one of their executives by another firm.

[CountDeMoney]

Corporate America gets a lesson from the pay czar
Jay Hancock

Corporate America is shocked at pay czar Kenneth Feinberg.

That Washington appointed him to oversee compensation at companies getting bailouts? Nah. That he thinks people who abused shareholders and crippled the economy don't deserve pay of tens of millions in some cases? Not really.

People are flabbergasted he has the stomach to do anything about it.

CEOs figured that Feinberg would be like every other paymaster they ever had. That he would rub his chin, act concerned about doing the right thing and then wire the gross domestic product of Nicaragua into their bank accounts.

Strange to say, however, he seems to be cracking down.

On Thursday, the Treasury Department announced that he'll chop cash salaries by 90 percent, partly substituting long-term stock grants in many cases.

Overall, it looks as if he'll cut pay in half for 175 top employees at Bank of America, Citigroup, General Motors and other firms that got taxpayer bailouts. At American International Group's financial-products unit, he'll cap pay at $200,000, the Wall Street Journal reported. That's below Wall Street's poverty level.

The whacks "were clearly much worse than what had been anticipated," an anonymous exec at one of the companies told the Journal.

OK, bigwigs at these companies will still get big packages. Pay is descending from stratospheric levels to K2 or Denali. The $5 million Feinberg is likely to award Citigroup boss Vikram Pandit is still a lot more than the $0.00 million Pandit would have gotten if the American people hadn't rescued his stupid company.

Give a casting call to the guy who talked to the Journal. To counteract complaints that Feinberg is going too easy, these folks will act aggrieved even if he just cancels a couple golf-club memberships.

Even so, he's slicing pay by more than analysts expected. And that brings shame to boardrooms not just in New York but in Baltimore, Boston, Chicago and every town where flunky directors won't stand up to the CEO and his agent.

Folks, Feinberg just showed you how to do your job.

He's working for the interests of the shareholders he represents - in this case, U.S. taxpayers. His first concern isn't maintaining a lucrative board seat by avoiding controversy. He's focused on making sure shareholders don't get looted, not on the CEO's donation to his pet charity.

He grasps a simple concept understood by every employee up to the level of senior vice presidents and their bosses, among whom it's as incomprehensible as particle physics: When you mess up, you don't get rewarded.

Feinberg rejects arguments that the job market demands obscene pay for Wall Street hotshots and that eight-figure packages are crucial to retain talent. To stars who threaten to walk, he says: The elevator's down the hall, just past the cigar humidor.

No doubt some will leave. But as a good shareholder proxy, Feinberg probably knows that such folks may represent more of a liability than an asset. Many of these people make money on financial-market whiplash, not on the long-term health of their companies.

Heck, they cause the whiplash. If they want to leave AIG and go wreck some hedge fund, Feinberg ought to personally clean out their desks and carry their boxes down to the limo.

By slashing cash payments and giving people stock they must keep for years, he puts executives in the same harness with shareholders. This is what corporate boards claim to do but don't. Instead, they pay millions to consultants who come up with specious arguments to give CEOs what they want.

Watch and learn, corporate directors. Feinberg shows what independence looks like. He says "no." He causes friction. He hacks off the people whose pay he sets. Spend more time doing that and less time partying with the CEO.

By doing the right thing, by showing some guts, by putting up with what must be ridiculous lobbying and pressure, Feinberg is the guy who deserves the big payday.

[Savonarola]

Aren't pretty much all the people still working there people who didn't really have much to do with the whole...fucking up...thing (at least at the higher levels)? 

Not at Chrysler and GM; Ron Gettelfinger is still president of the United Auto Workers.

[grumbler]

Aren't pretty much all the people still working there people who didn't really have much to do with the whole...fucking up...thing (at least at the higher levels)?  As in...competent people?  I, obviously, don't really know much about this stuff, but what's keeping some other company from coming along and offering them a million bucks a year, them taking the offer, and leaving AIG with the relative scrubs?  Some sort of contracts or something?

The contracts would likely be voided by the compensation cuts.  AIG going out of the financial products business because all their "competent" people get hired away would be a good thing.  Then you just fire the rest and shut the unit down.

AIG should have been allowed to go bust to begin with.  It may have been more painful in the short term, but less over the long haul.

[Martinus]

I think it would be cool if he, instead, put them on proscription lists.

[alfred russel]

Aren't pretty much all the people still working there people who didn't really have much to do with the whole...fucking up...thing (at least at the higher levels)?  As in...competent people?  I, obviously, don't really know much about this stuff, but what's keeping some other company from coming along and offering them a million bucks a year, them taking the offer, and leaving AIG with the relative scrubs?  Some sort of contracts or something?

I'm not sure there are a bunch of people looking to hire the successful executives of AIG.

AIG's core operations weren't the reason it imploded. There were insurance industry publications in the early part of this year that highlighted the number of departures at key insurance businesses at AIG. Basically when AIG went down a year ago, the executives did split for greener pastures. I posted a partial listing on the old forum  when some people were skeptical that AIG executives would have other job opportunities in such a bad economy.

[derspiess]

Corporate America gets a lesson from the pay czar

So how long have you been a socialist, Seedy?

[KRonn]

I guess limiting pay and bonuses for bailed out companies hits us emotionally as the right thing to do. But the non-bailed out corps won't have such restraints, will be paying their execs what that market pays out. So I'd have to think that at least one unintended affect of limiting AIG or others bailed out, will be that their execs leave, making it all the harder for the bailed out corps to make money and pay back the taxpayer investment in them.

I'm also wary of limiting pay, a pay Czar and all, because I feel that some of these politicians want to go further. Why not limit pay for defense contractors, or elsewhere? I'm sure there are many places where this could eventually be extended out to. Not sure I want the govt to be in the pay Czar business.

[Warspite]

No, every other firm would have the possibility of matching the pay that might be offered to one of their executives by another firm.

No, they don't. Other firms going down the sink - even if it was just one division's catastrophic results sending them down - would not be underwritten by taxpayers to the extent that an overall corporate failure sees no real hurting in the pocket.

For example, the many small and medium enterprises that have nothing to do with either the housing bubble or financial crisis have to face the reality that declining orders and tighter lending will mean pay freezes and cuts, even for executives.

A lot of finance types tell us that were they not able to offer massive bonuses and generous renumeration, they would not hold on to their best staff. Well, so what? From my anecdotal evidence at least, even after the pruning of excess pay in the last two years the average banking salary is well above any other sector I can think of in the UK, at least.

I don't see why having talent spread to other sectors of the economy is such a bad thing. I  was always taught to believe that was the essence of capitalism: the resources and talent goes to the most profitable use.

Really, I do not see why saving the overall functioning of the banking system has to go hand in hand with moral hazard.