Report: Bailed-out executives still enjoy hefty compensation from taxpayers

A government watchdog is blasting the Treasury Department for continuing to dole out robust pay packages to executives of bailed-out companies.

A new report found that executives from American International Group (AIG), General Motors, and Ally Financial, while still on a government lifeline, regularly pushed and received compensation in excess of guidelines originally set by the bailout team charged with overseeing executive paychecks.

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Of the 69 top executives whose pay was approved by the Treasury official overseeing bailed-out executive pay, all but one received an annual payout of at least $1 million, and nearly a quarter received pay packages in excess of $5 million.

The report, authored by the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) accused the Treasury of over-relying on the company's claims when determining the size of paychecks, and was "effectively relinquishing" some of its authority to the companies it is monitoring.

"The Office of the Special Master's [for TARP Executive Compensation] job is to look out for the interests of taxpayers, which it cannot do if it continues to rely to a great extent on the  companies' proposals and justifications without conducting its own independent analysis," the report stated.

However, the Treasury disputed many of the findings in the report, and said it would not implement SIGTARP's recommendations. The Treasury highlighted the fact that overall executive pay is down compared to 2009, and that it has recovered much of the TARP assistance to banks while turning a profit on that portion of the bailout.

The Treasury approved all 18 pay raise requests it received in 2012, ranging from $30,000 to $1 million. It also approved pay raises for executives at branches of companies that were either on the brink of bankruptcy or posting significant losses.

Original guidelines set by the Treasury recommended executives receive compensation that falls in line with the 50th percentile of similar employees at other companies. In addition, cash salary should be limited to $500,000, with additional compensation coming via long-term stock incentives so the executives have "skin in the game" when it comes to emerging from the bailout.

But SIGTARP found that Treasury set pay above the 50th percentile for 63 percent of the executives, and one-third of the executives received cash above $500,000. Half did not have pay packages that included long-term stock incentives.

In its defense, the Treasury said the 50th percentile mark is merely a "benchmark" and that more than half of the AIG packages fell below that level. At GM and Ally, "almost half" of the pay for executives met or beat that benchmark.

On the lack of long-term incentives, the Treasury said SIGTARP was "misleading" in its findings. In "limited circumstances," the Treasury approved compensation packages without those incentives, often because an executive may be near retirement or his or her position may disappear soon due to reorganization or other corporate changes.

The SIGTARP report noted that since the overarching goal of Treasury's TARP team is to steer companies through the bailout in a timely fashion, companies enjoy "significant leverage" in demanding heftier executive pay, warning tougher pay restrictions could drive away executives and slow progress.

The watchdog also suggested that the companies, years after the crisis, continue to show a "lack of appreciation" for the fact that they were saved from insolvency by bailout, and demand compensation that ignores that fact. For example, GM actually asked to be removed from the pay restrictions at one point, according to the report.

"The Acting Special Master told SIGTARP that it would be 'utterly normal' for these individuals…to expect over $500,000 in cash salary," the report stated. "That might be true if the companies had not been bailed out and were not still significantly owned by taxpayers."

The three companies received up to $135 billion in bailout support, but those efforts have been winding down recently. The government exited its bailout of AIG in December, and plans to wind down its support for GM in the next 12-15 months. Ally remains on government support, but has paid back roughly one-third of the $17 billion it received.

Overall, the Treasury argued its compensation team met all the regulatory requirements, and struck the balance between limiting excessive compensation while allowing the companies to remain competitive and pay back bailout funds.

Updated at 3:08 p.m.