Pay czar to slash bailout banks’ salaries

Heeding the public backlash against corporate bailouts, the Treasury’s executive paymaster Kenneth Feinberg is preparing to slash by half the pay of top executives at the seven biggest beneficiaries of government aid.

The cash pay of the top 25 executives at Citigroup, Bank of America, American International Group, General Motors, Chrysler and their financial subsidiaries will be slashed by 90 percent on average, and their stock compensation will be restricted so they cannot quickly cash it in, according to sources with knowledge of Mr. Feinberg’s planned announcement later this week.

Overall pay of the executives will average about half of what they earned last year.

Targeted for particularly harsh treatment is AIG, the huge insurance company that received the largest bailout - more than $180 billion - and provoked a public outcry earlier this year over its plans for generous employee bonuses.

AIG employees in the financial products division, whose risky and complicated insurance schemes imploded a year ago, will receive salaries of no more than $200,000, with no other compensation in the form of bonuses or stock permitted.

Moreover, Mr. Feinberg will demand that AIG executives make good on their pledge to claw back some of the $198 million in bonuses previously promised to those employees.

Also, in the future, executives at all the companies will need the government’s permission to get more than $25,000 in perks such as country club memberships, private planes and limousines.

Top administration officials have taken on Wall Street in making their case for drastic changes in financial pay and practices in recent days. Treasury Secretary Timothy F. Geithner called the resumption of big Wall Street bonuses after the public bailouts “deeply offensive,” while White House economic adviser Lawrence H. Summers called on bank executives to cooperate with efforts in Washington to reform the industry.

Mr. Feinberg hinted at the sweeping pay curbs Tuesday in an appearance before the National Association of Corporate Directors.

The pay czar said he “would have been surprised” if Bank of America chief executive Kenneth Lewis had been offered anything more than the zero compensation the bank announced he would get this year. Mr. Lewis plans to retire at the end of the year and will receive a retirement package worth more than $50 million that Mr. Feinberg said was “unique” and may not be subject to pay restrictions.

Mr. Feinberg, who has been intensively negotiating with the banks behind the scenes, also approved of Citigroup’s decision to sell of its Phibro energy trading unit, where the $100 million paycheck of star energy trader Andrew J. Hall had been thrown in question.

“Citigroup made a determination in its wisdom,” he said. “That speaks for itself.”

The threat of drastic pay cuts and other stiff government restrictions on bailout recipients earlier this year prompted a parade of banks to return the money they had received from the Treasury.

More than $75 billion has been returned from Goldman Sachs, Morgan Stanley, JP Morgan and other top banks. The return of bailout funds enabled these banks to avoid any changes in their generous pay practices. Goldman Sachs and JP Morgan, among others, already have announced more than $70 billion in planned bonuses this year.

Bank of America recently said it, too, would like to return its nearly $50 billion in bailout funds; but the bank so far has not done so.

Story Continues →