How those Wall Street firms will be affected by the Fed’s restrictions remains to be seen.
Treasury Secretary Timothy F. Geithner suggested that one of the goals of the stiff cuts ordered by Mr. Feinberg is to prompt the most heavily indebted companies to quickly repay the government. Bank of America already has stated its hopes to do so, but GM, Chrysler, Citigroup and AIG are considered a long way from being able to repay the more than $300 billion of bailout cash they received.
“We all share an interest in seeing these companies return taxpayer dollars as soon as possible, and Ken today has helped bring that day a little bit closer,” Mr. Geithner said.
Stephen Lerner, special assistant at the Service Employees International Union, called Mr. Feinberg’s pay cuts “a pretty good start” but said “it should not be limited to the seven companies.” He said the government should attempt to recover the large sums of money Goldman Sachs and other Wall Street executives made during the financial crisis.
The Fed and Treasury actions “combined are the beginning of a change to the idea that the masters of the universe cannot be held accountable,” Mr. Lerner said. “It’s bad business, morally bankrupt and bad for the economy.”
But Mark A. Calabria, analyst at the Cato Institute, said it sets a bad precedent of government interference in the market.
“I am a little concerned about where this will go in the long run. As a taxpayer I want my money back, but you don’t want to set up a system in which you scare off the best talent,” he said.
A Bank of America spokesman said the Feinberg restrictions already are hurting the bank.
“Competitors not subject to the pay restrictions already are exploiting this situation by identifying our top performers and using pay concerns to recruit them away,” spokesman Scott Silvestri said.
The Securities Industry and Financial Markets Association indicated it would resist the Fed proposal through the regulatory process. The Fed has allotted 30 days for public comment on its pay guidelines before they take effect.
“These proposed rules will likely affect compensation for hundreds if not thousands of professionals working in our industry,” said the association’s president, Timothy Ryan.
Charles G. Tharp, an executive vice president at the Center On Executive Compensation, said Mr. Feinberg’s focus on aligning compensation with shareholders’ interest is commendable, but the severity of the curbs may make it difficult for firms hit hardest by the crisis to attract the talent needed to restore their financial health.
“We also have significant concern about the governments intrusion into the boards authority to structure pay,” he said.
Joe Weber contributed to this report.
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