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Pay czar unveils tighter rules for more executives

WASHINGTON — The Obama administration on Friday issued new rules on how hundreds of mid-level executives can be compensated at firms that received the largest government infusions, saying it hoped other companies would voluntarily adopt similar measures.

Treasury's pay czar, Kenneth Feinberg, capped at $500,000 the annual cash salaries for most of the roughly 450 employees at four firms under his purview — Citigroup, American International Group, General Motors and GMAC. He also outlined how restricted stock and bonuses should be doled out.

In an interview Friday, Feinberg said he hoped his ruling would impact pay practices at other firms on Wall Street and beyond.

"There are hundreds of banking and other institutions that I think will benefit from the approach that we're taking."

Feinberg previously had set compensation limits for the top 25 earners at seven companies that received the largest injections of taxpayer funds. Friday's rulings covered the next 75 executives at four of the firms.

The regulations did not affect the three other firms. One, Bank of America, escaped the restrictions by returning all $45 billion it had received in government rescue funds on Thursday. Chrysler and Chrysler Financial also were exempt because no second-tier executives at either firm will be receiving more than $500,000 in total compensation this year.

For those who are affected, Feinberg's charge was to come up with a structure on pay, but not absolute limits on overall compensation as he had done for the top 25 executives. Instead, under rules announced Friday, compensation for the second-tier executives are to be made up of primarily three components: cash salary, salary paid in the form of restricted stock and bonuses that can be granted with a mix of cash and restricted stock, if performance goals developed by the compensation committee and reviewed by Feinberg are met.

At each of the companies, the bonuses for the executives covered by Feinberg were limited to a fixed pool, its size determined by earnings and other metrics, also set by the individual compensation committees and reviewed by Feinberg.

"A larger payment to one executive will require a smaller payment to another — so companies will be forced to make careful assessments as to which executives performed the best and deserve a bigger slice of the pie," Treasury said in a statement.

Feinberg also ruled that at least 50 percent of total compensation must be paid in a way that would limit the executives' ability to access it for three years. Cash must not exceed 45 percent of overall pay, except in cases where "good cause" has been shown, Feinberg said in his rulings. At least 50 percent of bonuses must be paid in stock that cannot be cashed in for at least three years. Any cash bonus must be delivered over two years.

Feinberg exempted 10 employees from the limits on cash salaries, after their employers argued they were critical to their firms' recovery, according to people with knowledge of the matter. Treasury declined to say who or what firms received the exemptions. But the sources said five of the people were at AIG, four at General Motors and one at GMAC. No one at Citigroup was exempted from the rules. The sources spoke on the condition of anonymity because the personnel decisions are confidential.

The Obama administration and federal regulators have argued that the restrictions are needed because past compensation practices effectively rewarded the sort of risk-taking that contributed to the recent economic crisis. There's been public outrage as well over decisions by Goldman Sachs and other resurgent banks to hand out handsome bonuses just a year after receiving federal aid.

"It is my goal that the principles that I've enunciated last October and now today will percolate and will become principles that Goldman and others" will adopt, said Feinberg, adding that Goldman's decision this week to pay 2009 bonuses to its top 30 executives solely in stock was a good sign.

Some compensation consultants to financial firms and lawyers who advise large Wall Street firms said they doubted Feinberg's compensation structure will serve as a model for the rest of the industry.

"Why would anybody go put themselves in a competitive disadvantage like that?" asked Steven Hall, an executive compensation consultant based in New York.

"I appreciate Mr. Feinberg's continued efforts to rein in outrageous compensation so that folks running companies that continue to be propped up by hard-earned tax dollars are forced to tighten their belts as well," Sen. Christopher Dodd, D-Conn., said in a statement Friday.

President Barack Obama will meet Monday with top executives from banks that mostly have repaid their bailout money. Among other things, he will ask them to adjust their executive compensation policies to reflect the same goals Feinberg pursued with his rulings: Discouraging excessive risk-taking and tying pay to long-term performance.

Information from the Associated Press was used in this report.

Pay czar unveils tighter rules for more executives 12/11/09 [Last modified: Saturday, December 12, 2009 12:04am]
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