Pay Czar to Slash Compensation at Seven Firms
The U.S. pay czar will cut in half the average compensation for 175 employees at firms receiving large sums of government aid, with the vast majority of salaries coming in under $500,000, according to people familiar with the government's plans.
As expected, the biggest cut will be to salaries, which will drop by 90% on average. Kenneth Feinberg, the Treasury Department's special master for compensation, also intends to demand a host of corporate governance changes at those firms.
Mr. Feinberg's ruling, expected in coming days, will provide fodder for the long-running debate about whether the Obama administration is being overly tough or overly lenient on Wall Street. An executive at one of the seven companies under Mr. Feinberg's authority said the terms came as a shock, especially because they changed so suddenly. The compensation restrictions "were clearly much worse than what had been anticipated."
The largest single compensation package will be less than $10 million and is destined for a Bank of America Corp. employee, according to people familiar with the matter. That is much less than Wall Street's standard payouts for star employees.
Yet some executives will still walk away with large paychecks. And some big salary cuts might skew overall numbers. Outgoing Bank of America Chief Executive Ken Lewis will receive no salary for 2009. Already, Citigroup Inc. is telling employees the net impact of Mr. Feinberg's rulings will be minimal because the cut salary will be shifted from cash to longer-term stock grants, said people familiar with the matter.
The Obama administration gave Mr. Feinberg the job of more closely tying compensation to long-term performance, something the White House believes will help prevent employees from taking unnecessary risks for short-term gains. The administration believes skewed compensation incentives were one cause of the financial crisis.
In addition to setting dollar amounts for the top 175 employees at the seven companies, Mr. Feinberg is also charged with setting compensation structures for an additional 525 people at the firms.
Some of the toughest pay restrictions will come at the financial-products unit of American International Group Inc., which has been blamed for the firm's near-collapse. No employee within that unit will receive compensation of more than $200,000, people familiar with the matter said.
Mr. Feinberg will also demand a series of corporate governance changes at the firms, including splitting the chairman and CEO positions, requiring boards of directors to create "risk" committees and eliminate staggered board elections, which critics charge inhibit change.
The point of biggest debate will be the cutting of cash salaries, which are expected to hold below $500,000. Instead, employees will receive what has become known as "salary stock" -- long-term stock grants in lieu of cash that can't be touched for at least four years. Employees could receive a lot of these grants in the next two months because Mr. Feinberg wants them issued in 2009.