WASHINGTON, (Reuters) – The Obama administration yesterday named Kenneth Feinberg, the lawyer who oversaw the government’s compensation fund for victims of the Sept. 11, 2001, attacks, as its pay czar to police compensation of top earners at companies receiving “exceptional” government aid.
It also urged new laws to give shareholders more say on how executive salaries are set and put in place rules to govern pay at companies getting taxpayer aid, part of a multi-pronged effort to curb practices it says led to the financial crisis.
The pay packets of top executives, which sometimes are equal to several hundred times the pay of average employees, ignited a storm of controversy after the U.S. Treasury rescued banks and other companies from the brink of collapse by pumping in billions in taxpayer dollars.
Under the new rules, Feinberg would have broad control over pay for top executives of the seven firms deemed to be receiving exceptional assistance — General Motors, Citigroup, Bank of America, Chrysler, AIG, GMAC and Chrysler Financial.
The rules implement congressional restrictions on bonuses for senior executives and other top earners at companies that receive government bailouts.
At the firms receiving exceptional assistance (each of which has received more than $500 million in aid) Feinberg would be able to reject pay packages for the five most senior executives at each firm. He would also have the power to reject the next 20 most highly paid employees if he finds the compensation excessive.
Many banks have chafed at curbs on pay that accompanied the capital injections they received from the government — restrictions that 10 top U.S. banks will be free of after winning clearance Tuesday to repay bailout money.
Feinberg’s decisions are to be guided by a set of principles that weigh the risks being taken by executives, the potential return for taxpayers, how pay is allocated between salary and other forms of compensation, comparable pay at other firms and whether pay is calculated to improve performance.
Separately, U.S. Treasury Secretary Timothy Geithner urged Congress to give the Securities and Exchange Commission new powers to affect how executive pay scales are set.
Treasury wants Congress to pass legislation to give the SEC authority to oblige all publicly traded companies to give shareholders a non-binding vote on pay packages for top executives. It also wants legal power for the SEC to ensure that internal pay committees, which set pay levels and perks for company leaders, are more independent from management.
Geithner said the administration’s intent was not to set pay caps, but to link compensation more closely to a company’s long-term financial performance.
“We will continue to work to develop standards that reward innovation and prudent risk-taking, without creating misaligned incentives,” he said.
SEC Chairman Mary Schapiro told reporters that her agency was also working on executive compensation rules, but said they would not dictate particular pay levels.
The administration’s legislative proposals may get a skeptical response from Congress. Representative Barney Frank, the powerful chairman of the House Financial Services Committee, said the proposal to make compensation committees more independent seems like “a fruitless task.”
