Kenneth Feinberg, the Obama administration’s special master on executive compensation, called on 17 bailed-out financial firms including Goldman Sachs Group Inc. and Bank of America Corp. to adopt compensation policies that allow directors to lower top executives’ pay when their firm is under threat.
About $1.6 billion the companies paid executives during the financial crisis, though legal, were “ill-advised” and showed “bad judgment,” Feinberg said at a press conference in Washington today. He stopped short of asking the firms to return money and declined to say the payments were “contrary to the public interest.”
The other companies Feinberg cited were: American International Group Inc., Citigroup Inc.; Morgan Stanley; JPMorgan Chase & Co.; Wells Fargo & Co.; American Express Co.; Capital One Financial Corp.; CIT Group Inc.; M&T Bank Corp.; Regions Financial Corp.; SunTrust Banks Inc.; Bank of New York Mellon Corp.; PNC Financial Services Group Inc.; U.S. Bancorp and Boston Private Financial Holdings Inc.
Feinberg, 64, is winding down work started when he was appointed last year after public outrage over bonuses paid at the AIG unit responsible for trades that led to $100 billion in losses and a $182.3 billion taxpayer bailout.
Last year he scrutinized pay at seven firms, including AIG and Citigroup. Rescued companies that weren’t included in those rulings, such as Goldman Sachs and Morgan Stanley, were part of the so-called look-back review covering a four-month period of 2008 and 2009.
Feinberg’s ruling reflects “an effort to effect improved executive compensation structures through public opinion,” said Mark Poerio, a Washington-based compensation attorney with Paul, Hastings, Janofsky & Walker LLP.
It wouldn’t have been fair to rule that the companies had acted against the public interest because they weren’t subject to government pay regulations at the time, Feinberg said. He said he was concerned such a decision could have spurred private lawsuits.
“Congress might very well be more willing to intervene if there was such a finding,” Feinberg said. “I’m trying to minimize the likelihood that today’s decision will trigger another round of investigations and litigation.”
Feinberg said 11 of the 17 companies had repaid their TARP funds with interest, showing “the wisdom” of the government’s $700 billion Troubled Asset Relief Program.
Pay in some cases was “excessive,” Feinberg told Bloomberg Television in an interview today. He said “second- guessing” the firms was part of his job.
Feinberg told Bloomberg TV that the 17 companies should allow their boards of directors “to terminate legally obligated compensation contracts and declare them null and void going forward in the event of another financial crisis.”
Some payments to executives during the period exceeded $10 million, Feinberg said. He declined to name the companies or individuals.
“Getting our compensation structure right is a priority for us,” Citigroup spokeswoman Molly Millerwise Meiners said in an e-mail today. “Since the crisis, we have done a lot of work to make sure it is performance-based and we look forward to reviewing the special master’s recommendations.”
Feinberg said Citigroup has agreed to comply with his requests.
Citigroup agreed to sell its Phibro LLC energy-trading unit last year 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.
Many of the companies Feinberg named “are already heading down the path” toward overhauling their pay policies, said David Wise, principal and consultant on compensation issues for Hay Group, a Philadelphia-based management consulting firm. “It’s all headed in a much better direction, but there’s still more work to do.”
Feinberg surveyed pay practices that 419 companies used from October 2008, when government funds were first awarded, to February 2009, when President Barack Obama signed economic stimulus legislation that included pay curbs.
“In a crisis situation, a firm would have authority to restructure, reduce or cancel payments to executives -- and not be bound by ‘guarantees,’” Feinberg’s office said in a statement. “The entirely voluntary proposal is recommended by the special master for wide adoption.”
Feinberg will leave his post as special master on pay next month to focus on his job as government-appointed administrator of BP Plc’s fund to pay claims stemming from the Gulf of Mexico oil spill. His successor hasn’t been named.