WASHINGTON (Reuters) - The U.S. pay czar on Thursday slashed compensation for top earners at seven bailed-out companies for the final two months of the year, and was immediately slammed by the country’s largest bank which claimed the cuts could send talent fleeing.
Many of the firms, which have together received more than $300 billion in taxpayer aid, issued conciliatory statements, but Bank of America said the ruling would put it at a disadvantage in competing with companies not under the pay czar’s thumb.
“People want to work here, but they want to be paid fairly,” said BofA spokesman Scott Silvestri.
Pay czar Kenneth Feinberg said competitive concerns and public outrage both played a role in how he reworked pay contracts for the 25 highest-paid employees at the five financial firms and two automakers who are the biggest recipients of government aid.
He said their cash compensation rates for the remainder of 2009 would drop 90 percent compared to 2008. Their overall compensation rates for those two months would on average be cut in half.
But he added he will not claw back payments already made. “I’m not going to go back and ask everybody to repay what they’ve already earned,” Feinberg said.
The companies affected are American International Group Inc, Bank of America Corp, Citigroup Inc, General Motors Co, Chrysler, GMAC and Chrysler Financial.
U.S. officials have said Wall Street pay practices must be reformed to rein the excessive risk-taking that fueled the crisis that pushed the financial system to the brink of collapse last year.
Huge pay packages for banks and other financial firms have ignited public anger at a time the U.S. unemployment rate is at a 26-year high and seen climbing.
President Barack Obama said Feinberg’s actions would help curb risk-taking, while still allowing the firms to prosper.
“We don’t disparage wealth, we don’t begrudge anybody for doing well, we believe in success,” Obama said. “But it does offend our values when executives of big financial firms — firms that are struggling — pay themselves huge bonuses even as they continue to rely on taxpayer assistance to stay afloat.”
Feinberg hinted the bailed-out firms did not seem to get the message adding that without exception, all of the pay plans that they submitted were inconsistent with the public interest.
“Some of the negotiations were very intense,” he said.
His rulings cut salaries across the board and shifted much of the base salary to stock that can only be sold in one-third installments, beginning in two years. Bonuses can also only be paid in long-term restricted stock and are contingent upon performance and repayments of bailout funds.
“Corporate America, I hope, will be looking at this,” Feinberg said.
He said the cuts that applied to November and December could impact which employees will be the top 25 earners at these firms in 2010. Those top earners are the only ones for whom he can alter pay contracts.
Feinberg said his office will start work on pay contracts for 2010 at the beginning of the year and will use the 2009 rulings as a baseline. The rulings on next year’s pay would likely come in the first quarter, he said.
AIG’s Chief Executive Robert Benmosche moved to quell concern among the insurer’s employees on the potential impact of Feinberg’s actions.
“It is important that all of you know that the Special Master’s jurisdiction is quite limited, and we expect Feinberg’s ... decisions on compensation to cover only the top 25 employees at AIG,” Benmosche said in an internal memo obtained by Reuters.
While Feinberg’s powers only extend to the seven bailed-out companies, the government on Thursday unveiled a broader initiative to have the Federal Reserve closely police pay across financial firms.
The Fed issued guidelines to tie compensation at the banks it regulates more closely to the risks these firms take. The Fed oversees more than 5,000 bank holding companies and over 800 smaller state-chartered banks.
“Banking organizations too often rewarded employees for increasing the firm’s revenue or short-term profit without adequate recognition of the risks the employees’ activities posed to the firm,” the U.S. central bank said.
Public anger boiled over in March when insurer AIG handed out fat bonuses just months after accepting tens of billions of dollars in government aid.
Recent news that Goldman Sachs Group Inc had set aside $16.8 billion for compensation, so soon after repaying $10 billion in taxpayer money, fueled concerns that Wall Street was already returning to the lavish pay practices that were commonplace before the financial crisis struck.