The Pay Czar on His Shrinking Empire
As the Obama Administration's compensation czar, Ken Feinberg is trying to curb outsize pay at companies receiving bailout funds while making sure they retain sufficient talent to pay the government back. On Dec. 14, Citigroup (C) worked out a deal to exit the Troubled Asset Relief Program, becoming the last bank to escape his direct control. Later that day, Senior Editor Diane Brady spoke with Feinberg about the challenges he faced and the impact of his efforts. Here are excerpts from the interview.
DIANE BRADYHow does it feel to have so many TARP recipients racing to repay the money?
KENNETH FEINBERGIt feels wonderful. It was always our understanding, emphasized by the Treasury Secretary, that the first and foremost priority was to get the taxpayers' money back.
So was part of the motivation in clamping down on pay a desire to inspire these banks to pay back the money as quickly as possible?
Our motivation in clamping down on compensation was, first, to bring compensation in line with the economic realities in this country. It's not just the dollars that are important. It's the method of paying: less cash and base salary, more stock over a longer period of time, pay tied to performance, no guarantees, no promises.
Does it bother you that the banks now have free rein when it comes to paying their people?
No! That's always been the goal—to pay back the taxpayer. We don't want to micromanage these companies.
How did you come up with the $500,000 pay cap? Were there some metrics around that, or did it just feel like the right amount?
The $500,000 came from a wide variety of sources. The President mentioned it at one point, I believe, or Secretary [Tim] Geithner. We did some economic studies. We asked for some comparative data. And we got some comfort, empirically, that it was about right.
AIG (AIG) is an interesting case. It has had a talent exodus.
There has been an exodus of personnel. I leave it to AIG to decide whether it's talent or not. I'm very mindful of the concern expressed, not only by AIG but by the Federal Reserve and by the Treasury, that AIG is in danger of losing important people.
Didn't some of the top execs threaten to leave when faced with the pay cap? Is that a case where you took a position and then had to backtrack?
No. I think that's incorrect. I've made some decisions based on input from the company, from the Fed, the Treasury. The Fed and the Treasury have no agenda other than to make sure AIG thrives financially.
What about Bank of America (BAC)? Do you think its search for a CEO has been imperiled by the pay restrictions you placed on it?
You'll have to ask them. I can't tell you how the pay determination and my oversight has hindered or helped in their search for a CEO. [As Bloomberg BusinessWeek went to press, BofA insider Brian Moynihan was nameed CEO.]
Both the U.K. and France have imposed broad-based taxes on bankers' bonuses. Would that work here?
I'm not sure if the British model or the French model makes sense or not as public policy. But I do like the idea of leading European governments attempting to deal with the problem. It's what the Treasury Secretary urged in a meeting with the G-20—a systematic attempt to rein in excessive compensation.
Would you do the same thing if you could?
I'm not an expert on taxation so I can't talk about the merits of that approach.
Where do you see this all going? Do you think you can fundamentally reset executive pay, or are we headed back to business as usual?
Who can say for sure? I would hope Corporate America has learned from this financial crisis.
What have you learned through this process?
What I've learned is the extraordinary gap in perception between Wall Street and Main Street.
That's what has some people so outraged right now: They look at Bank of America and Citi repaying the money and they aren't saying: "Isn't it great that we're getting our money back?" They see it as a cynical maneuver, a way to clear the decks so bankers can go back to enriching themselves with hefty bonuses.
It is a misperception. I think that one would be well advised to acknowledge the importance of repayment. That is a return on the promise to repay when the taxpayers saved these companies.
What if we didn't own these companies? Do you think government should have any say over pay?
Absolutely not. In this capitalist system, which has worked on and off for more than 200 years, I don't think it's appropriate or sound for government to interfere with the private marketplace when it comes to compensation.
But you were complimentary of the moves Britain and France are making.
My compliment about Britain and France was not about the tax proposal but the fact that they're doing something to deal with excessive compensation.
You've worked on some tough assignments—remedies for soldiers exposed to Agent Orange, negotiating settlements for the families of September 11 victims. How does this experience compare with those?
There will never be anything as traumatic as the 9/ll fund. For 33 months, I was hearing about these tragedies. Nothing compares with that.