President Barack Obama says Americans’ values are offended by excessive paychecks for executives whose companies were bailed out by taxpayers.
Speaking at the White House on Thursday, Obama praised the Treasury Department’s decision to order seven big companies that haven’t paid back last year’s government bailouts to halve their top executives’ average compensation.
But he said more must be done, and urged Congress to pass legislation to give shareholders a voice in executive pay packages.
Obama says Americans believe in success. But, he says, “It does offend our values when executives of big financial firms that are struggling pay themselves huge bonuses even as they rely on extraordinary assistance to stay afloat.”
THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.
WASHINGTON (AP) ? First came the bailout. Now comes the payback.
The Treasury Department is ordering seven big companies that haven’t paid back last year’s government bailouts to halve their top executives’ average compensation.
The cuts apply to the 25 highest-paid executives at the companies, with salaries being slashed up to 90 percent, according to a person familiar with the matter. The companies are: Bank of America Corp., American International Group Inc., Citigroup Inc., General Motors, GMAC, Chrysler and Chrysler Financial.
Kenneth Feinberg, the Treasury official overseeing compensation at those bailed-out firms, is releasing details of his actions Thursday.
President Barack Obama was expected to discuss Feinberg’s decision at a White House event Thursday.
His top spokesman, Robert Gibbs, told reporters that Obama continues to believe executive compensation should be based on performance and not on the “wild risk-taking that got us into a situation where taxpayers then had to become involved to stabilize the financial system.”
“A lot of these folks have jobs because of what the taxpayers did to ensure their stability,” Gibbs said.
Treasury Secretary Timothy Geithner praised the outcome of Feinberg’s deliberations.
“We gave him the difficult task of cutting excessive pay, striking a balance between compensation and risk taking and keeping strong management teams in place to help the economies recover ? all in the public interest,” Geithner said in a statement.
Meanwhile, the Federal Reserve unveiled a proposal Thursday that for the first time would police banks’ pay policies to ensure they don’t encourage employees to take reckless gambles like those that contributed to the financial crisis.
Unlike the Treasury plan, the Fed proposal would cover thousands of banks, including many that never received a bailout. But the central bank would not actually set compensation. Instead, the Fed would review ? and could veto ? pay policies that could cause too much risk-taking by executives, traders or loan officers.
“The Federal Reserve is working to ensure that compensation packages appropriately tie rewards to longer-term performance and do no create undue risk for the firm or the financial system,” said Fed Chairman Ben Bernanke.
Under the proposal, the 28 biggest banks would develop their own plans to make sure compensation doesn’t spur undue risk taking. If the Fed approves, the plan would be adopted and bank supervisors would monitor compliance.
At smaller banks ? where compensation is typically less ? Fed supervisors will conduct reviews. Those banks don’t have to submit plans.
The Fed refused to identify the 28 banks that will have to submit plans. But Citigroup, Bank of America and Wells Fargo & Co. are usually included on such lists. Nearly 6,000 banks regulated by the Fed would be covered.
Elizabeth Warren, who heads the Troubled Asset Relief Program’s oversight committee, said Thursday on CBS’s “The Early Show” that reports of pending slashes in executive salaries are “real.”
Smaller companies and those that have repaid the bailout money, including Goldman Sachs Group Inc. and JPMorgan Chase & Co., are not affected by the Treasury plan.
Tom Wilkinson, a GM spokesman, said Wednesday that the auto company was “currently in discussions with Mr. Feinberg’s office regarding executive compensation. We will have further information once those discussions have concluded.”
GMAC has “been working on a proposal that aims at embodying the principles set forth for compensation along with balancing the need to retain critical talent necessary to execute our turnaround. Until we receive notification about that plan, we have no further comment,” said Gina Proia, a spokeswoman.
Chrysler Group issued a similar statement. Representatives for Chrysler Financial, Bank of America, Citigroup and AIG declined to comment.
But company officials and lobbyists earlier this month said Bank of America, Citigroup, GMAC Financial Services and others were reworking their pay plans to ensure compensation reflects executive performance. They’re giving executives more of their compensation in stock and stock options, and spreading pay over a longer period. They are also adopting plans to recapture some pay when bets go bad.
The changes are not limited to those on Feinberg’s list. JPMorgan Chase & Co. and Goldman Sachs Group Inc. also are compensating senior employees with more stock and less cash.
In the AIG trading division, the arm of the company whose risky trades caused its downfall, no top executive will receive more than $200,000 in total compensation, the person familiar with Feinberg’s plan said. The giant insurance company has received taxpayer assistance valued at more than $180 billion.
In an August filing with the Securities and Exchange Commission, AIG disclosed that new CEO Robert Benmosche would be paid $7 million a year, with the potential to make millions more in performance-based incentives. According to reports from the time, the package included $3 million initially with $4 million in stock to be held for five years as well as performance bonuses.
As CEO, Benmosche’s pay would be considered outside of the $200,000 average compensation for AIG’s trading unit. But, according to reports at the time, Feinberg saw splitting the salary and future stock bonuses as a model because it tied compensation to the company’s long-range performance.
The administration will warn AIG that it must significantly reduce the $198 million in bonuses promised to employees in its financial services division, the person familiar with Feinberg’s decisions said.
The pay restrictions for all seven companies will require any executive seeking more than $25,000 in special benefits ? things such as country club memberships, private planes and company cars ? to get permission for those perks from the government.
Until now, these companies were only required to provide guidelines for the use of such luxuries. The inspector general at Treasury who oversees the bailout program found a range of standards. GM, for instance, generally prohibits employees from flying in private jets for business travel. Bank of America, on the other hand, encourages senior management to use corporate aircraft “for safety and efficiency purposes.”
Feinberg’s decisions come days after administration officials voiced sharp criticism of plans by some firms, particularly those on Wall Street, to pay huge bonuses even as the country continues to struggle with rising unemployment and the effects of the recession.
Goldman Sachs, which has paid back its bailout money, has said it earmarked $16.7 billion for compensation so far this year, more than $500,000 per employee. Citigroup is paying $5.3 billion in bonuses to its employees and Bank of America $3.3 billion.
Elsewhere, Freddie Mac is giving its chief financial officer compensation worth as much as $5.5 million, including a $2 million signing bonus. The government-controlled mortgage finance company doesn’t have to follow the executive compensation rules because it is being paid outside the TARP.
Congress passed legislation in February requiring Treasury to oversee pay at companies that took bailout money. Treasury created the pay czar’s office in June as one means of implementing that law.
Treasury’s rules require the special master to review pay for the 25 top earners at companies that received “exceptional assistance,” examining overall pay structures and recapturing payouts that go against taxpayers’ interests.
Feinberg on Tuesday told a Washington audience that negotiating with the companies was a study in contradictions.
“Perfect metrics, competitive pay, no excessive risk, loyalty to the company,” he said. “What I have to do under the law ? and everyone’s waiting” is to create compensation packages “reflecting those often conflicting principals.”
Feinberg has until Oct. 30 to design pay packages for top earners.
Copyright 2009 The Associated Press.
