GM Salaries Busted U.S. Bailout Limit Last Year: Watchdog

The U.S. Treasury Department signed off on General Motors Co. pay packages that broke a pledge to cap cash salaries at $500,000 in most cases at companies bailed out by the federal government, according to a watchdog report.

Sixteen top employees at GM and the automaker’s former lending unit, Ally Financial Inc., were approved cash salaries of $525,000 to $1.7 million last year, the Special Inspector General for the Troubled Asset Relief Program said in a report today. The report didn’t identify the executives.

The report sheds more light on the decision-making behind the government’s 2009 rescue of the automobile industry during the recession and efforts to retain executives to run the companies. The Office of the Special Master for TARP pay, or OSM, was under pressure by the companies it oversaw to provide competitive pay packages or risk losing top executives.

“The pendulum in OSM’s pay decisions has swung too far in the direction of keeping companies competitive, without regard for the fact that the reason to keep companies competitive is so that they can repay taxpayers in full,” the inspector general said. “GM and Ally were not repaying taxpayers in full.”

The Treasury-approved salaries exceeded pledged limits even after it was clear taxpayers wouldn’t recover all the bailout money injected into GM and Ally, the inspector general said. Even when taking into account those making less than $500,000, cash salaries last year for 25 of the highest paid workers at GM and Ally exceeded TARP’s agreed upon market median for those positions, according to the report.

Treasury Response

“Treasury loosened its own pay restrictions for senior executives at General Motors and Ally Financial year after year, even as taxpayer losses in these companies mounted,” Special Inspector General Christy Romero said in a statement.

The Treasury, in a written response, took issue with the finding, saying the report contains “many inaccuracies and omissions.” The report describes “mounting losses” for TARP, while taxpayers recovered $440 billion on $425 billion paid out to all of the companies, the Treasury said.

The executive pay packages reflect the rules of the TARP program, which limit cash and use of stock to align their incentives with those of the government, the Treasury said. Cash compensation for top executives at GM and Ally was 4 percent below the median for cash salaries at comparable companies.

Pay Raises

Compensation for GM executives shifted to stock under TARP. In 2013, total compensation for 24 top employees ranged from $1.06 million to $9 million, according to the report.

The inspector general also was critical of the size of pay raises, singling out eight cases of six-figure jumps, ranging from $250,000 to $490,000 -- as high as 20 percent in a single year.

“The record shows that the Office of the Special Master has fulfilled its obligation to balance limiting executive compensation with allowing companies to repay taxpayer assistance,” Patricia Geoghegan, Treasury’s acting special master for executive compensation, said in a statement. “Pay packages for the top 25 employees at each of those companies have been restricted so long as the company remained in TARP.”

The inspector general said it addressed Treasury’s comments in the report “where applicable.”

Jobs Saved

The 2013 pay levels of GM’s top five executives were below median for comparable companies, the Detroit-based company said in its 2014 proxy statement. That included the $9 million package for then Chief Executive Officer Dan Akerson, as well as the $5.34 million his replacement, Mary Barra, made when she was an executive vice president.

“We remain grateful for the assistance we received from taxpayers,” a GM spokesman, James Cain, said. “While the U.S. Treasury owned GM stock and ever since, we have worked to align executive compensation with the long-term interests of stockholders, and we will continue to do so.”

Congress created TARP in 2008 amid a financial shock that threatened to drag the U.S. into a depression. The U.S. investment in GM, the largest automaker in the nation, was the biggest piece of an $82 billion industry bailout that became a centerpiece of President Barack Obama’s first term.

The rescue saved 1.14 million jobs in 2009 at automakers and companies that depend on the industry, according to the Ann Arbor, Michigan-based Center for Automotive Research. A collapse would have reduced personal income in the U.S. in 2009 and 2010 by $96.5 billion, costing the federal government $28.6 billion in extra jobless benefits and reduced Social Security contributions and income taxes in those years, the center said.

Ally Payback

The last vestiges of the GM bailout were written off by the Treasury in March.

Ally is the only company still under TARP supervision, with U.S. taxpayers owning 66.2 million common shares, according to a Sept. 12 Treasury statement. That’s about 13.8 percent of the Detroit-based company, previously known as General Motors Acceptance Corp., or GMAC.

Taxpayers have received $18 billion back on the TARP payments to Ally, about $875 million more than invested, said Gina Proia, a company spokeswoman. That profit will increase as Treasury continues to sell its stock, she said.

“Ally is pleased to have been able to more than repay the American taxpayer due in large part to the dedication of its management team,” Proia said. Ally’s success has come “despite the significant constraints” TARP imposed, she said.

The administration of President Barack Obama hasn’t done enough to enforce limits on executive pay designed to ensure companies in the future are reluctant to seek government assistance, the inspector general said.

(Corrects General Motors Acceptance Corp. name in the 18th paragraph.)
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