Pay czar to cut compensation at government aid firms?

Kenneth Feinberg: US pay czar

Kenneth Feinberg, the Treasury Department's special master for compensation and the 'US pay czar', has announced he will cut in half the average compensation for 175 employees at firms receiving large sums of government aid.

According to people familiar with the proposed plan, the cuts will be made to mostly salaries under $500,000, which could drop, in some cases, by 90 percent. Instead, employees will receive what has become known as "salary stock", long-term stock grants given instead lieu of cash, that can't be touched for at least four years. Feinberg also intends to implement a host of corporate governance changes at those firms.

This will include splitting the chairman and CEO positions, requiring boards of directors to create "risk" committees and eliminate staggered board elections, which critics charge inhibit change.

Compensation incentives

It is the latest step in President Obama's administration clamping down on Wall Street after the recession, and speaking to the Wall Street Journal, one executive and one of the seven companies affected said the changes came as a 'shock'. They added that the compensation restrictions "were clearly much worse than what had been anticipated."

The administration gave Mr. Feinberg the task of more closely tying compensation to long-term performance, in order to prevent employees from taking unnecessary risks for short-term gains. It is believed that these 'compensation incentives' were one of the over-riding causes of the financial crisis.

In addition to setting dollar amounts for the top 175 employees at the seven companies, Mr. Feinberg will also set compensation structures for an additional 525 people at the firms. He is expected to come down hard on the financial-products unit of American International Group who have been blamed for the firm's near-collapse. It is believed no employee within that unit will receive compensation of more than $200,000.

The companies under Mr. Feinberg's authority are AIG, Bank of America, Citigroup, General Motors Co., GMAC Inc., Chrylser Group LLC and Chrysler Financial. It is understood that many executives at these companies are not overly happy with the news, especially as the banks have lured a number of new recruits to them in recent months with multi-year guarantees.

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