Top executives at seven firms still repaying billions from a taxpayer bailout must cut their total compensation by half under a new plan released Thursday by the Obama administration.
The 25 highest-paid executives at Citigroup, Bank of America, insurance giant American International Group, automakers General Motors and Chrysler, and the automakers' financing companies GMAC and Chrysler Financial will be affected, said Kenneth Feinberg, the Treasury Department official appointed to oversee executive compensation issues at bailed-out companies.
Executives' 2009 base salaries would be slashed by an average of 90 percent over last year and total compensation — including salary, bonuses and other financial incentives — would be cut an average of 50 percent, Feinberg said at an afternoon briefing in Washington.
Although the changes will mostly affect November and December compensation, those months determine the year-end bonuses that have been the subject of much criticism from the public and lawmakers.
"I am extremely sensitive to the public outrage about this," Feinberg said during a briefing in Washington. Outrage over huge executive bonuses at firms receiving government bailout led to public protests.
Commenting on Feinberg's plan, President Obama said executive compensation plans that reward executives with big bonuses and high salaries when their companies are struggling is offensive to American values.
"This is America. We don't disparage wealth. We don't begrudge anybody for doing well. We believe in success, but it does offend our values when executives of big financial firms — firms that are struggling — pay themselves huge bonuses even as they continue to rely on taxpayer assistance to stay afloat," Obama said at the signing of a veterans health care bill.
The president said Feinberg's plan strikes a balance between taking up for taxpayers and bringing stability to the U.S. financial system.
"I believe he's taken an important step forward today in curbing the influence of executive compensation on Wall Street, while still allowing these companies to succeed and prosper," he said.
But he said more needs to be done and urged Congress to pass legislation that would prevent future crises.
Separately, the Federal Reserve announced a two-pronged proposal on bank compensation in an effort to halt the type of risk-taking that caused the financial crisis.
The Federal Reserve regulates nearly 6,000 banks, and all of them would have to allow Fed supervisors to review their pay policies for risk potential.
The Fed will also review the 28 largest, most complex banks to ensure that compensation packages don't include incentives that would lead to excessive risk-taking. Those banks would develop their own pay policies and submit them to the Fed for approval. Fed officials could veto the plans if they are seen as encouraging undue risk or rewarding short-term gains over long-term results.
"Compensation practices at some banking organizations have led to misaligned incentives and excessive risk-taking, contributing to bank losses and financial instability," Federal Reserve Chairman Ben Bernanke said. "The Federal Reserve is working to ensure that compensation packages appropriately tie rewards to longer-term performance and do not create undue risk for the firm or the financial system."
But the Fed stops short of enforcing a cap on pay.
Scott Talbot, chief lobbyist for a group of the largest financial institutions, said the Fed is moving in the right direction.
"What you don't want to do is overregulate and set specific pay caps, because each company is different and each employee is different," he said.
The Federal Reserve will take public comment before finalizing the guidelines.
GMAC is working on a proposal that aims at embodying the principles set forth for compensation along with balancing the need to retain critical talent necessary to execute our turnaround, said Gina Proia, a spokeswoman.
Earlier this month, officials and lobbyists earlier this month said some companies were reworking their pay plans to ensure compensation reflects executive performance. They're giving executives more of their compensation in stock and stock options, and spreading pay over a longer period. They are also adopting plans to recapture some pay when bets go bad.
The Associated Press said that at the AIG trading division, the arm of the company whose risky trades caused its downfall, no top executive will receive more than $200,000 in total compensation under Feinberg's plan.
The giant insurance company has received taxpayer assistance valued at more than $180 billion.
In an August filing with the Securities and Exchange Commission, AIG disclosed that new CEO Robert Benmosche would be paid $7 million a year, with the potential to make millions more in performance-based incentives. According to reports from the time, the package included $3 million initially with $4 million in stock to be held for five years as well as performance bonuses.
As CEO, Benmosche's pay would be considered outside of the $200,000 average compensation for AIG's trading unit. But, according to reports at the time, Feinberg saw splitting the salary and future stock bonuses as a model because it tied compensation to the company's long-range performance.
The pay restrictions for all seven companies will require any executive seeking more than $25,000 in special benefits — things such as country club memberships, private planes and company cars — to get permission for those perks from the government.
NPR's Tamara Keith and the Associated Press contributed to this report.
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