Money Matters, Simplified.
Top executives of bailed out companies face slashed salaries
by Ishita Sood - October 22, 2009 - comments
The latest move was negotiated by U.S. Treasury Department’s Kenneth Feinberg, who was the special master of the $700 billion Troubled Asset Relief Program
Washington, October 22 -- The Obama administration plans to cut the pay packages of 25 top executives of companies that received billions of dollars during the government bailouts.
Their salaries will be slashed by an average 90 percent compared to the previous year, an official involved in the decision said on Wednesday.
The companies are Citigroup, Bank of America, American International Group (AIG), General Motors, Chrysler and the financing arms of the two car companies, Chrysler Financial and GMAC.
The move was negotiated by U.S. Treasury Department’s Kenneth Feinberg, who was the special master of the $700 billion Troubled Asset Relief Program (TARP). The policy is said to be a bold step to curb high pays in Wall Street. The rulings will be publicly unveiled before Oct. 30.
According to the latest Treasury Department figures, the companies mentioned above have received $240 billion of the TARP and only repaid a total of $2 billion so far.
New policy could save millions
The new pay rules could backfire, prompting some executives to leave the companies, said J.W. Verret, a scholar at the Mercatus Center policy research institute at George Mason University.
"This new policy will attract executives who don't have a better alternative, and who don't mind running a business based on political influence," he said. "This new policy will save us tens of millions at a cost of billions in losses when we try to sell these companies."
Nell Minow, editor at research firm Corporate Library, said "When you're talking about restoring credibility and a sense of fairness, I think there is a tremendous symbolic effect that's legitimate and worthwhile."
Impositions on perks
Executives in all seven companies will be imposed new restrictions on perks. Any executive looking for more than $25,000 in special perks like country club memberships, private planes, limousines or company-issued cars etc. will have to apply to the government for permission.
GM and Chrysler have already stopped using private planes and reduced various perks for executives. GM CEO Fritz Henderson accepted a 30 percent cut as a chief operating officer in 2008 and has received no raise henceforth.
The policy also warns AIG to fulfill the commitment it had made on reduction of $198 million in bonuses promised to employees.