Ted Kaufman - United States Senator for Delaware

Feinberg says success of executive compensation rules will be seen down the road

Source: The Hill

By Vicki Needham

October 22, 2010

Kenneth Feinberg, who oversaw executive compensation for companies receiving federal bailout funds, said the government's plan was largely successful although the full effects won't be known for several years.

Feinberg, who left his post as special master of executive pay during the summer to take over the BP oil-spill fund, said the success of the program to rein in excessive compensation packages on Wall Street is dependent on whether firms voluntarily continue its principles.

"We're looking for a long-term effect, something broader beyond the seven companies," Feinberg on Thursday told the Congressional Oversight Panel overseeing the Treasury Department's Troubled Asset Relief Program (TARP).

Feinberg had jurisdiction over the compensation packages of the 100 highest-paid employees at seven firms — insurer AIG, financial firms Bank of America and Citigroup, auto companies Chrysler and General Motors and their former finance groups, Chrysler Financial and GMAC.

Long-term success of the government's prescribed compensation program will be determined by whether firms outside the seven adopt the pay structure outlined for those firms that the government deemed "exceptional assistance recipients."

Damon Silvers, director of policy and special counsel at the AFL-CIO, told Feinberg that "your work has undoubtedly, significantly improved compensation practices in the financial sector in the companies you had authority over."

"We substantially reduced what we thought was inappropriate largesse on part of top 25 officials, and it was mostly consensual with companies and demonstrates an overall drop in executive pay," Feinberg said.

"Overall, in a very limited way, we did exactly what we were trying to do within the seven companies," he said.  

The compensation packages were based on performance and long-term returns, capping salaries, in most cases, at $500,000, including restricted stock as part of what Feinberg deemed a less financially risky equity-based pay plan.

"We decided, in a move that I think is important," to ensure that long-term compensation for any top individual "is deferred as much as possible so long-term success or failure of that company will be tied to the long-term compensation of that executive," Feinberg said.

"I think it's sort of elementary."

Still, questions remain as to whether any significant changes on Wall Street will take place.

Sen. Ted KAUFMAN (D-Del.), the panel's new chairman who took over the spot vacated by Elizabeth Warren, said recent news reports reflected that Wall Street wasn't planning to change their practices of guaranteed salaries and bonuses, regardless of performance, "one iota."

"If it includes everyone, if it's a broad brush across Wall Street and includes Bank of America and Goldman Sachs, which voluntarily agreed to the prescriptions, then I think that our work hasn't been successful and it's not being followed and it is a problem," Feinberg said.

"If that's the case, other agencies that professed to rein in executive pay like the SEC [Securities and Exchange Commission] and the Fed, the mandate falls to them to pick up the slack."

KAUFMAN responded that "I think everyone agrees that it would be better if we didn't turn to that."  

He said it would be "very disturbing" if firms are given the opportunity to change practices and they decide not it, "you have to wonder about where the answer is," to avoid another financial meltdown.

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