Romero Says Treasury Should Curb Pay for Bailed Out Firms
The U.S. Treasury Department should reevaluate total compensation for employees in companies that were bailed out and apply guidelines that will curb excessive pay, Christy Romero, the special inspector general for the Troubled Asset Relief Program, said.
“Treasury’s success should not be judged based on reductions in pay from a time when these companies stood on their own without taxpayer assistance,” Romero said today in prepared testimony to the House Committee on Oversight and Government Reform. “Rather, Treasury’s success should be based on whether Treasury awards appropriate pay for executives while taxpayers continue to fund these companies’ bailouts.”
Pay for top executives at seven bailed-out companies was scrutinized and restricted by the Treasury special master’s office starting in 2009. General Motors Co. (GM) and Ally Financial Inc. (ALLY) are still in TARP. American International Group Inc. (AIG) , Bank of America Corp., Citigroup Inc., Chrysler Group LLC and Chrysler Financial Corp. have left the program and are no longer subject to the special master’s rulings.
Romero said today that AIG may return to “past compensation practices,” and that it falls to the insurer’s new regulator, the Federal Reserve, to ensure that the insurer’s pay practices don’t encourage “excessive risk taking.”
Romero’s testimony on pay matches comments contained in a Jan. 28 report published by her office. In an interview with Bloomberg Television last week, AIG Chief Executive Officer Robert Benmosche declined to comment on that report.
“Pay is something that has to be appropriate and it has to reflect what people contribute,” Benmosche said. “You won’t be successful in the business if you overpay relative to your competition. You won’t stay in business if you grossly underpay.”
AIG has said pay limits imposed as part of a rescue package that swelled to $182.3 billion harmed the New York-based company’s ability to attract, retain and motivate employees.
Patricia Geoghegan, the Treasury’s acting special master for TARP executive compensation, said in the same hearing that Treasury continues to limit compensation and that AIG’s average pay packages in 2012 were at the 48th percentile compared to similar positions at similar companies.
“We will continue to follow the framework and guidelines we used in the 2009-2012 determinations for GM and Ally Financial until they have exited TARP,” Geoghegan said.