Nov. 12 (Bloomberg) -- Kenneth Feinberg, the Obama administration’s special master for executive compensation, said he is “very concerned” about the possibility his pay cuts may drive talent away from companies bailed out by U.S. taxpayers.

“I’m very cognizant of the concerns expressed by these companies,” Feinberg said today in Washington at an event held by Bloomberg Ventures, a unit of Bloomberg LP, parent of Bloomberg News. “The law makes it clear that the determinations I render are designed, first and foremost, to make sure those companies thrive and that the taxpayers get their money back.”

Feinberg has ordered pay cuts averaging 50 percent for the top 25 executives at Citigroup Inc., Bank of America Corp., American International Group Inc. and four other companies that took U.S. bailout money. He will rule on pay structures covering the next 75 highest-paid employees at those firms by year-end.

“Maybe I’ve struck the right balance,” Feinberg said, referring to criticism that he has been too harsh and too easy on executives. “Hopefully some of this will percolate into the private sector, we’ll have to see.”

The U.S. will track possible executive defections by seeking from the seven companies data on comparative pay, by obtaining independent information and requesting “anecdotal evidence of vacancies and concerns about losing people,” he said.

“You cannot help but be sensitive to the political realities,” Feinberg said. “You can’t have blinders on.” He added that there was “no vindictiveness in my decisions. There’s no revenge.”

AIG’S Benmosche

Feinberg said AIG Chief Executive Officer Robert Benmosche, who took over the insurer in August, had “expressed his concern that compensation keep his people on board and that the company thrive.” Feinberg told reporters he has met with the chief executive “one or two times over the last few months.”

Benmosche yesterday wrote to AIG employees, saying he remains “totally committed” to leading the insurer after media reports suggested he told the board he may step down because U.S. pay caps hurt his ability to retain staff.

Benmosche released the letter after the Wall Street Journal said Nov. 10 that he told directors last week he might resign because of U.S. limits on employee compensation. Benmosche, who came out of retirement to lead New York-based AIG, said he is “frustrated” with limits on what the company can pay its top 100 executives.

Phibro Sale

Citigroup last month agreed to sell its Phibro LLC energy- trading unit to Occidental Petroleum Corp. to avoid a showdown with Feinberg over a proposed $100 million pay package for Andrew Hall, Phibro’s chief executive officer.

“It was Citigroup that made the determination that it did not want Phibro and its traders to be subject to my jurisdiction,” Feinberg said. “They made the voluntary decision to spin that unit off.” Feinberg noted that he had “expressed reservations” that Hall’s pay might constitute “excessive risk.”

Phibro, based in Westport, Connecticut, made money in each fiscal year since 1997. New York-based Citigroup, which had a record $27.7 billion net loss last year, accepted a price of about $250 million, less than Phibro’s average annual earnings.

Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co.’s investment bank, all exempt from Feinberg’s oversight, will hand out a combined $29.7 billion in bonuses, according to analysts’ estimates. That’s up 60 percent from last year and more than the record $26.8 billion in 2007. The companies are the biggest banks to exit the Troubled Asset Relief Program.

To contact the reporter on this story: Ian Katz in Washington at ikatz2@bloomberg.net.

Last Updated: November 12, 2009 11:29 EST