Top executives at seven companies will have their cash compensation slashed by 90 percent

Responding to the most severe financial crisis since the Great Depression, the United States Treasury Department — under the direction of Secretary Timothy Geithner — on October 22 announced comprehensive actions intended to restore trust and confidence in America’s financial system.

Geithner applauded the work of Special Master Kenneth R. Feinberg, who developed the reforms for executive compensation.

“Ken Feinberg has done a commendable job of applying the strong compensation standards of the Congressional legislation to the companies that received exceptional assistance from the government,” Geithner said in a press statement.

A key element of the plan calls for a 90 percent reduction in 2009 salaries of the top 25 executives at seven companies that received the most taxpayer assistance from the federal government under the Trouble Asset Relief Program (TARP). These firms include AIG, Citigroup, Bank of America, Chrysler, GM, GMAC and Chrysler Financial.

In addition, cash salaries will generally be limited to $500,000 and personal expenses will be capped at $25,000.

“We all share an interest in seeing these companies return taxpayer dollars as soon as possible , and Ken…has helped bring that day a little bit closer,” Geither remarked.

The Special Master’s rulings also requires executives to hold company stock for the long term, unlike pay practices in the past.

“Stock received as salary may only be sold in one-third installments that will not begin until 2011, unless the taxpayer is repaid earlier,” Feinberg determined.

At a “Ripped From The Headlines” symposium at George Washington University on Friday, Special Master Feinberg further explained the scope of his authority.

“My jurisdiction under the statute is limited to these seven companies,” Feinberg noted. “As to those seven companies, I am required by law to consider compensation packages for each of the top twenty-five that are consistent with the public interest.”

The next objective of the Special Master, in the next 60 days, is to design compensation structures for the seven companies for corporate officials twenty-six through one hundred.

“Finally, there is a third statutory mandate that I have, but it is not mandatory. It is purely discretionary,” Feinberg said. “That statutory mandate permits me…to claw back TARP compensation that’s already been paid to corporate officials — not just at these seven companies, but corporate officials at any company that received TARP assistance.”

Feinberg said he was reluctant to implement this final mandate but did not rule out the possibility of ever using the authority.

“I am reluctant to become a bill collector or a Treasury official reaching out and trying to get back compensation long since distributed, long since taxed, long since spent.”

Chrysler Financial said in a press release that the company was currently reviewing the details of the Special Master’s ruling, “therefore, the Company has no detailed comment at this time.”

Big 3 News aired a Round Table discussion about the topic on an October 24 broadcast. Reaction to the compensation limits was mixed.

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