White House (CNSNews.com) - Corporations receiving “extraordinary assistance” from the federal government will have to answer to a new "pay czar" who will oversee the compensation for top executives.
President Obama named Kenneth Feinberg, an attorney who oversaw the payments to families of victims of the 9/11 terror attacks, as the special master for compensation for companies in the Troubled Asset Relief Program (TARP).
“He will have the jurisdiction to review compensation to determine if it is sound and appropriate, rather than excessive,” White House Press Secretary Robert Gibbs said on Wednesday.
The seven companies over which Feinberg will have direct authority are American International Group (AIG), Citigroup, Bank of America, General Motors, GMAC, Chrysler and Chrysler Financial.
The government will have oversight authority for as long as those companies receive “exceptional” assistance from the $700-billion financial bailout, or TARP, which became law in the final days of the George W. Bush administration.
Though no specific guidelines are in place, the administration’s authority to make Feinberg some sort of “pay czar” comes from legislation passed by Congress through an amendment attached to the $787-billion economic stimulus package.
Written by Sen. Chris Dodd (D-Conn.), the amendment was enacted in February to restrict executive compensation in companies that receive TARP funds. The amendment says that executives at bailed-out companies can receive bonuses no larger than one-third of their salary.
“The American people expect the Troubled Asset Relief Program to stabilize our economy, get credit flowing, and end the wave of foreclosures sweeping across the nation,” said Dodd in February in a statement about his amendment. “They simply will not tolerate their tax dollars being used to reward the very same executives whose irresponsible behavior contributed to the nation’s financial crisis – and neither will I.
Said Gibbs on Wednesday: “This is not an effort to set salaries for every publicly traded company in the country. This is an effort to protect the taxpayers.”
The administration also is seeking regulations from Congress that would extend beyond the scope of top TARP money recipients.
Treasury Secretary Timothy Geithner announced on Wednesday an administration proposal to allow shareholders to have a non-binding voice on executive compensation and require corporate compensation committees to be independent from corporate management.
“This financial crisis had many significant causes, but executive compensation practices were a contributing factor,” Geithner said in a statement. “Incentives for short-term gains overwhelmed the checks and balances meant to mitigate against the risk of excess leverage.”
Geithner called the proposal “say on pay” legislation because it gives the Securities and Exchange Commission authority to require companies to give shareholders a non-binding vote on compensation.
“’Say on pay’ – which has already become the norm for several of our major trading partners, and which President Obama supported while in the Senate – would encourage boards to ensure that compensation packages are closely aligned with the interest of shareholders,” Geithner said.
The Treasury secretary stressed this was not a matter of the government controlling what corporations pay their employees.
“I want to be clear on what we are not doing: We are not capping pay,” Geithner said. “We are not setting forth precise prescriptions for how companies should set compensation, which can often be counterproductive. Instead, we will continue to work to develop standards that reward innovation and prudent risk-taking, without creating misaligned incentives.”