Aug. 21 (Bloomberg) -- President Barack Obama and his advisers are taking a hands-off approach to the review of pay packages at companies receiving taxpayer aid, a senior adviser said, leaving the politically sensitive task of dealing with the fallout to Kenneth Feinberg.

Companies including New York-based American International Group Inc. and Citigroup Inc. submitted executive-pay proposals last week to Feinberg, the administration’s so-called special master on executive pay, for a 60-day review. Obama hasn’t been briefed on the plans and neither he nor any of his White House aides will be involved in Feinberg’s decision, senior adviser Valerie Jarrett said in an interview.

“There is no micromanagement by the White House in this at all,” said Jarrett, Obama’s chief liaison to the business community. “The president has explicitly said he doesn’t want that. He wants Ken to do this on his own.”

For an administration that has stepped into the private sector to help the economy recover from the worst recession since the Great Depression, the approach signals a more careful tactic. Feinberg’s role insulates Obama from being seen “as the agent of political pressure one way or the other on the operations of the private sector,” said Bill Galston, a former adviser to President Bill Clinton.

“For the president to be personally in a position where he can be accused of being wage-setter-in-chief” for companies, “that’s not a desirable position for him to be in right now,” said Galston, now a scholar at the Brookings Institution in Washington.

Pay Guidelines

Feinberg’s mandate is to set the pay guidelines for top managers at seven companies bailed out by the U.S., including Bank of America Corp. Chief Executive Officer Kenneth Lewis. Once the plans are completed, Feinberg has 60 days to decide pay packages for the 25 top-earning employees and in a second-phase he will do the same for the next 75 highest-paid.

The designation of Feinberg, 63, as an independent administrator is part of a strategy to distance the White House from the pitfalls of micromanaging complex compensation issues at bailed-out institutions, other administration officials said. The appointment of Feinberg, who oversaw a compensation fund for victims of the Sept. 11 terrorist attacks, also helps sidestep a perception on Wall Street that the government is trying to run big business, the officials said.

Obama’s administration also has toned down the language on compensation issues that has helped stoke populist outrage, recognizing a need to protect the government’s investment in firms like Citibank by keeping them competitive with top talent in place.

‘Independent Assessment’

“The expectation is that Ken will do his own independent assessment,” Jarrett said. “His charge is to really balance retaining talent, aligning compensation appropriately with performance and making sure that we protect our investment.”

To be sure, even with an independent pay czar, the government is still setting the parameters for the compensation to be managed.

“The Treasury Department issued the guidelines, so he has to work within the statute and the regulations,” said Mark Poerio, a partner focusing on pay at Paul, Hastings, Janofsky & Walker LLP in Washington.

Obama Priority

Reining in executive pay has been a priority for Obama, 48, since his days as a U.S. senator; he has long advocated a proposal to give shareholders a non-binding vote on executive pay. He has also had to work to balance his rhetoric between those angry about executive bonuses and those who say the government shouldn’t be involved in compensation matters.

Since appointing Feinberg in June, White House officials have addressed whether the administration was intervening too much by stressing the need for a regulatory overhaul. They have also reinforced a desire to avoid the perception of meddling in day-to-day private-sector operations.

“What we haven’t seen, I think, is the kind of change in behavior and practices on Wall Street that would ensure that we don’t find ourselves in a fix again,” Obama said in a press conference July 22.

“I’d like to think that people would feel a little remorse and feel embarrassed and would not get million-dollar or multimillion-dollar bonuses,” he said. “But if shame does not work, then I think one proposal that I put forward is to make sure that at least shareholders of these companies know what their executives are being compensated.”

AIG Package

White House Press Secretary Robert Gibbs illustrated the hands-off approach when asked about AIG CEO Robert Benmosche’s $7 million annual salary earlier this week.

“The president has talked about we’re not micromanaging these companies,” Gibbs said Aug. 18. “Government’s not making these decisions.”

Under the package, which was preliminarily approved by Feinberg, according to AIG, Benmosche, 65, will get $3 million in cash and $4 million in common stock. He is also eligible for as much as $3.5 million a year in long-term incentive awards, according to a regulatory filing by the company.

“Having long-term restricted stock that’s tied to performance is a way of aligning employees’ performance with the success of the company,” Jarrett said. “And that’s a good thing.”

Jarrett, 52, said she’s “surprised” that she’s heard “very little of late from the business community” on matters of compensation.

“I haven’t gotten a single phone call since these packages were submitted,” she said. “People were generally pleased that the president had selected someone from the outside.”

To contact the reporter on this story: Julianna Goldman in Washington at jgoldman6@bloomberg.net

Last Updated: August 21, 2009 10:19 EDT