Oct. 22 (Bloomberg) -- The Obama administration’s special master for executive compensation said the pay reductions he demanded at seven taxpayer-rescued firms should become the model for the rest of Wall Street and corporate America.

“There is entirely too much reliance on cash and there’s got to be a better way to tie corporate performance to long-term growth,” the Treasury Department’s Kenneth Feinberg said in a briefing today in Washington. “I’m hoping that the methodology we developed to determine compensation for these individuals might be voluntarily adopted elsewhere.”

The combination of Feinberg’s ruling and Federal Reserve guidelines for bankers’ compensation announced today thrusts the government into decisions normally reserved for corporate boards. The Obama administration blames unchecked risk-taking fueled by excessive pay partly for the financial crisis that has caused more than $1.6 trillion in losses and writedowns worldwide and 7.2 million job cuts in the U.S.

Pay cuts announced today apply to compensation earned by employees for November and December and will be revisited at the start of 2010, Feinberg said. He said he isn’t seeking to claw back salary or bonuses that executives may already have received this year. He announced cash salary reductions averaging 90 percent and total compensation declines of 50 percent.

Feinberg, in findings issued today, allowed cash salaries of more than $1 million for three of 175 positions under his supervision. American International Group Inc. Chief Executive Officer Robert Benmosche and two employees of Chrysler Financial Corp. are the only executives to get more than $1 million, the Treasury Department said in a statement today.

GM, Citigroup

The five other firms are Bank of America Corp., Citigroup Inc., General Motors Co. and its financing arm General Motors Acceptance Corp. and Chrysler Group LLC.

Feinberg rejected the cash bonus that was to be paid to Andrew Hall, CEO of Citigroup’s Phibro LLC energy-trading unit, according to his statement. Citigroup on Oct. 9 agreed to sell Phibro to avoid a potential showdown with Feinberg over Hall’s $100 million pay package. Bank of America Chief Executive Officer Kenneth Lewis, at Feinberg’s urging, agreed last week to give up his 2009 salary and bonus.

Feinberg restructured cash “guarantees” into stock that must be held for the “long-term,” according to the Treasury’s statement. “Guaranteed minimum amounts give employees little downside risk in the event of poor performance -- but upside when times are good.”

Outrage Flares

Feinberg, 63, who was special master of the Sept. 11th Victim Compensation Fund, was named to the Obama administration pay position in June. Executive pay came under scrutiny after companies got billions of dollars in aid last year amid the worst financial crisis since the Great Depression. Public outrage flared in March after New York-based AIG paid $165 million in bonuses to employees of the derivatives unit.

“I am extremely sensitive to the public outrage,” Feinberg said today.

“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,” Treasury Secretary Timothy Geithner said in a statement.

Separately, the Fed today proposed new guidelines on pay practices at banks and said it will launch a review of the 28 largest firms to ensure compensation packages don’t create incentives for the kinds of risky investments blamed for the financial crisis.

“Compensation practices at some banking organizations have led to misaligned incentives and excessive risk-taking, contributing to bank losses and financial instability,” Fed Chairman Ben S. Bernanke said in a statement. “The Federal Reserve is working to ensure that compensation packages appropriately tie rewards to longer-term performance.”

To contact the reporters on this story: Robert Schmidt in Washington at rschmidt5@bloomberg.netIan Katz in Washington at ikatz2@bloomberg.net.

Last Updated: October 22, 2009 15:40 EDT