By Silla Brush, Jared Allen - 10/21/09 10:00 AM EDT
The White House and congressional Democrats are sharply criticizing the billions of dollars flowing for Wall Street pay and bonuses, but they have little power to rein in the rainmakers.
On Tuesday, Kenneth Feinberg, the special paymaster named by the administration earlier this year, expressed doubt that compensation practices would change overall in the industry.
Feinberg said there is an “incredible gap” between perceptions on Wall Street and Main Street.
"It is a formidable chasm that I’m not sure can be bridged,” Feinberg told a conference of the National Association of Corporate Directors.
The lavish pay practices and other perks are likely to continue as the financial industry recovers from the worst of the economic crisis.
The Obama administration set up Feinberg’s office earlier this year when the disclosure of more than $165 million in bonuses at crippled insurance firm American International Group (AIG) stoked a firestorm of criticism.
Feinberg’s office, however, has the authority to review compensation practices at only seven firms that received major assistance under the government’s $700 billion bailout program. The firms are: GMAC LLC, Chrysler Financial, Citigroup, Bank of America, AIG, General Motors and Chrysler.
Feinberg must approve the pay packages of the top 25 employees at each firm by Oct. 30. He dismissed the public characterization that he is a “pay czar” and said he is not issuing “imperial compensation edicts.” Feinberg also said he is “extremely reluctant” to invalidate previous contracts at the firms and continues to pore over the details of specific contracts with each company.
“You hope that the bully pulpit will have some impact overall on executive compensation. We’ll see,” Feinberg said. “My power is limited by statute and regulations to those seven companies. That’s all I can do.”
Feinberg’s office told AIG to reduce $198 million in scheduled retention pay at the company, according to the government watchdog over the bailout program. Corporations argue they need to be able to award pay at a level that allows them to retain their best employees.
Treasury Secretary Timothy Geithner told the Reuters Washington Summit Tuesday that there are “very significant changes” made in compensation packages, but said of the firms: “I don’t think they’ve gone far enough yet.”
He also said the Federal Reserve will propose its pay reform rules “relatively soon.”
White House senior adviser David Axelrod called the Wall Street bonuses “offensive,” and President Barack Obama’s chief of staff, Rahm Emanuel, said he was frustrated with the industry.
Obama traveled to New York City Tuesday evening to raise money for the Democratic Party, in part from well-heeled financiers.
The administration’s comments come as the outrage at Wall Street bonuses is rising on Capitol Hill. Liberal Democrats are pushing the White House to do more to restrict pay practices.
Rep. Michael Arcuri (D-N.Y.), who is drafting the letter with Rep. Bruce Braley (D-Iowa), said bonuses have yet to receive the proper level of scrutiny from the Obama administration.
“When you get this kind of pushback from corporate America on something that’s just so rooted in common sense, you’ve got to act,” Arcuri said. “These banks need to somehow see the big picture.”
Arcuri said he and other Democrats hope renewed frustration at the White House will force the Senate to take a stronger stand on corporate pay issues.
House Democrats criticized the Senate for failing to take up several measures that passed the lower chamber that were intended to limit “excessive” compensation.
In April the House passed, largely along party lines, an amendment to the government bailout program that prohibited money from going toward “unreasonable and excessive compensation and compensation not based on performance standards.”
Just before the August recess, the House approved a bill that would give shareholders a greater say in how bonuses and compensation packages are designed across corporate America, not just on Wall Street. The bill was one of the first parts of the Obama administration’s broader efforts to overhaul the financial industry.
Both bills have sat idle in the Senate. The Senate Banking Committee continues to discuss the broader overhaul of the regulatory system.
“Where is the Senate on this stuff?” one senior Democratic aide asked rhetorically on Tuesday.