Top earners at financial and auto companies bailed out by the U.S. government will see their pay slashed under an Obama administration plan aimed at addressing public outrage over eye-popping paychecks, two sources familiar with the matter said on Wednesday.
The plan calls for halving overall compensation, and cutting cash salary payouts by an average of 90 percent, said the sources, who requested anonymity because they were not authorized to speak publicly about the matter.
The sweeping cuts, being negotiated by U.S. pay czar Kenneth Feinberg, would mark a bold move for an administration that has railed against excessively high pay on Wall Street.
White House economic adviser Lawrence Summers told the Reuters Washington Summit on Wednesday that he believed Feinberg's review would produce an outcome where they will be very substantially reduced.
White House spokesman Bill Burton, traveling with President Barack Obama in New Jersey, told reporters, The president put Ken Feinberg in place in order to be an advocate for taxpayers and it appears that Mr. Feinberg is doing what the president put him in place to do. Otherwise, Burton said, he would not comment ahead of the report, due October 30.
The companies affected are: AIG, Bank of America, Citigroup, General Motors, Chrysler, GMAC and Chrysler Financial. They all declined to comment.
A Treasury Department spokesman also declined to comment.
Blockbuster earnings and bonuses at Goldman Sachs Group Inc and other companies that received taxpayer assistance have stoked public anger over compensation as the United States grapples with a 9.8 percent unemployment level and little assistance for homeowners struggling to pay mortgages.
Feinberg, whose actions only impact companies that received exceptional assistance from the government, said on Tuesday that he may publicly disclose his rulings before the October 30 deadline. He could not be reached for comment on Wednesday.
The Wall Street Journal reported that he also planned to demand broader corporate governance changes, including splitting the roles of chairman and chief executive officer.
AIG UNIT EYED
The sources said the top earners at AIG's financial products unit, largely blamed for risky bets that threatened the stability of the insurer, would not receive more than $200,000 in total individual pay.
That unit became the illustration of Wall Street insensitivity when it was revealed that its employees were receiving $165 million in retention bonuses, after taxpayers had pledged up to $180 billion to keep the company afloat.
In an interview with Reuters in August, Robert Benmosche, who became AIG's chief executive this summer, railed against efforts to regulate pay and criticism leveled at his employees, arguing, You still need to pay people competitively.
Feinberg told a group of corporate directors on Tuesday that the bailed out companies have delivered to him a consistent message that they need to keep their pay competitive.
You hear a great deal about the need for these companies to remain competitive, he said. You hear that quite a bit.
Feinberg's review looked to be popular with organized labor and other groups, some of which have accused the administration of being cozy with Wall Street.
I think he is right on the money and he is going after them as aggressively as he can, said Richard Ferlauto, director of corporate governance and pension investments for the American Federation of State, County and Municipal Employees.
But, Robert Profusek, a corporate governance lawyer with Jones Day in New York, called Feinberg's review very discouraging.
I don't understand why it is in the taxpayers' best interests for us to be punitive in regard to TARP recipients, said Profusek, who advises banks and other corporate clients on executive compensation issues.
Taxpayers have a big stake in them. Don't we want them to be nourished rather than seeking retribution, which is what this seems to be.
Feinberg is charged with approving or renegotiating pay contracts for the top 25 earners at the seven companies that have received exceptional taxpayer assistance under the Troubled Asset Relief Program (TARP).
He said on Tuesday that he has spent the past four months working closely with the companies to try to come up with actual dollars that can be endorsed by these seven TARP recipients.
He said he believes he has basically succeeded in renegotiating pay, even for contracts over which he did not have explicit authority.
But Feinberg's decisions will not necessarily touch the Wall Street companies that have repaid TARP funds, some of whose bonuses are already returning to pre-crisis levels.
The administration has proposed a broad crackdown on pay, including giving shareholders more say on compensation packages and forcing companies to disclose more about their pay practices.
(Reporting by Karey Wutkowski, Caren Bohan, and David Lawder in Washington and Steve Eder, Dan Wilchins, and Lilla Zuill in New York, Editing by Toni Reinhold)