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The U.S. Treasury Department on Thursday ordered seven companies that received billions of dollars in funds from the government's bailout of the financial system to halve total compensation for their top executives.
The Federal Reserve joined the Treasury Department on Thursday in imposing new limits on executive pay, extending the government's control over compensation at taxpayer-owned companies to institutions that are merely government-regulated.
“The taxpayers are in deep with these seven companies, and one of my primary obligations is to see to it that the taxpayers' dollars are returned to the U.S. Treasury," said Kenneth Feinberg, the special master for executive compensation under the $700 billion Troubled Asset Relief Program, or TARP.
The companies under Mr. Feinberg's authority are AIG, Bank of America, Citigroup, General Motors Co., GMAC Inc., Chrysler Group LLC and Chrysler Financial.
He said he does "not accept as a priority" that the government should be vindictive or punitive about executive compensation, but he acknowledged that Americans are upset about huge bonuses and salaries at companies that received bailouts.
The "real challenge" in setting pay limits, he said, was to balance the fact that the seven companies owe the taxpayers billions of dollars with the proposition that they should not reward excessive risk in getting that money back.
The aim, he said, was to "make sure that key people stay on the job in order to get that money back."
The government's move "is a seismic shift,'' said Espen Eckbo, director of the Centre for Corporate Governance at Dartmouth College's Tuck School of Business. But the broader impact will be "much more significant from the governance side,'' he added.
Some criticized the moves. "It dramatically injects the government into pay practices at private companies, and could lead to great harm to investors,'' said Charles Elson, head of the Weinberg Centre for Corporate Governance at University of Delaware's business school. "It diminishes the authority of the board and the other investors that the board is there to protect."
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The articles in Executive Reward Market Watch are of general interest and guidance. Action should not be taken on any specific article without taking specific advice.
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