NEW YORK — The Obama administration plans to order companies that have received exceptionally large amounts of bailout money from the government to slash compensation for their highest-paid executives by about half on average, according to people familiar with the long-awaited decision.
The cuts will affect 25 of the most highly paid executives at each of five major financial companies and two automakers, according to the sources, who spoke on the condition of anonymity because the plan has not been made public. Cash salaries will be cut by about 90 percent compared with last year, they said.
The administration will also curtail many corporate perks, including the use of corporate jets for personal travel, chauffeured drivers and country club fee reimbursement, people familiar with the matter have said. Individual perks worth more than $25,000 have received particular scrutiny.
In making the ruling, the administration's "pay czar," Kenneth Feinberg, will be inserting the government as never before into pay decisions traditionally made in corporate boardrooms. His decree, which the Treasury Department expects to announce today, will culminate a months-long review prompted by public outrage over outsize paydays at failing companies saved with taxpayer money.
The seven companies under Feinberg's purview are Citigroup, Bank of America, General Motors, Chrysler, GMAC, Chrysler Financial and American International Group. These firms have received a total of about $250 billion in bailout funds from the Troubled Assets Relief Program, adopted last year by Congress, and benefited from hundreds of billions of dollars more in government guarantees and other support.
Feinberg, who was named special master on compensation by the administration in June, has sole discretion to set compensation for the five top senior executives plus the 20 highest-paid people after them at each of the seven companies. His decisions are binding.
Under Feinberg's plan, cash salary for affected executives will go down by an average of 90 percent, the sources said. That means an executive who received $1 million in cash salary last year would get $100,000 this year.
Executives can still receive additional salary in stock, but will have to wait two years before redeeming the shares. Even then, they will be able to cash in on only a third of that stock. The executives will be able to cash in another third after three years and the rest after four years. Because it is considered salary, executives get to keep the stock even if they leave their employers.
Under Feinberg's plan, executives at the Financial Products unit of American International Group — widely blamed for the insurer's downfall — will receive only a base cash salary, the source said. None of the AIG unit's employees will receive more than $200,000.
Executives at Chrysler Financial — the automaker's lending arm, which is winding down operations — will also receive only the cash salary component, the source said.
The extent of the pay cut for most of the 175 executives will be less severe than the average for the overall group.
For example, Citigroup initially proposed a pay package for star trader Andrew Hall that included a $100 million bonus, according to two people familiar with the matter. But the bank submitted a revised plan that defers Hall's compensation until 2010, when it would no longer fall under Feinberg's purview. The revised plan now lists Hall's 2009 bonus as zero, people familiar with the matter said.
Earlier this month, Feinberg gave his blessing to a pay package worth up to $10.5 million for AIG's new chief executive, Robert Benmosche. Under the plan, Benmosche would receive an annual salary of $7 million — $3 million in cash and $4 million in fully vested common stock — and would be eligible to receive long-term incentive awards of up to $3.5 million each year.
Bank of America and GMAC would not comment, saying they had not yet been notified of the cuts by Feinberg's office. Citigroup, AIG, GM and Chrysler Financial also declined to comment. The carmaker Chrysler would not discuss details before Feinberg's announcement.