Report: Bailed out executives made millions despite pay restrictions

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The call for pay restrictions at bailed out companies came from Congress, and they also came from the White House following public outrage at hefty bonuses paid out at bailed out firms. In 2009, President Obama announced that companies that received "exceptional assistance" would see executive pay capped at $500,000, with any further compensation coming in stock that could not be sold until the company left government support. Congress followed that up with a provision of the stimulus act also targeting executive pay, which ultimately led to the creation of the "pay czar."

While charged with keeping companies on taxpayer support from using public dollars to fund hefty compensation packages, SIGTARP nonetheless found that it was incredibly difficult to actually meet the objective, exceeding the stated cap several times for multiple companies. From 2009 to 2011, his office approved pay packages exceeding $5 million for 49 different people -- but he was able to shift more of that compensation into company stock rather than cash.

The report keys in on seven companies that received "exceptional" assistance after the financial crisis, and thus were subject to the new pay restrictions -- American International Group, Inc. (AIG), Bank of America, Citigroup, Chrysler and its financial arm, General Motors and Ally Financial, formerly GMAC. The government still owns portions of three -- AIG, General Motors, and Ally.

The report suggests that executives at the bailed out firms failed to realize or acknowledge their shift from private entities to ones surviving primarily thanks to a government lifeline. Executives continued to push for hefty pay packages such as those seen by competitors still standing on their own in the private sector, and occasionally wanted robust compensation for executives thought to have contributed to the crisis. For example, SIGTARP found that Ally pressured Feinberg for better pay, even though he was concerned some of the executives seeking compensation played a role in forcing Ally to need a bailout to begin with.

In defending the push, Ally CEO Michael Carpenter gave SIGTARP an example of one executive at his company that at one time made $1.5 million, with two-thirds of that coming as a cash salary.

"Cutting this person’s salary to $500,000…this individual is in their early 40s, with two kids in private school, who is now considered cash poor," he said. "We were concerned that these people would not meet their monthly expenses due to the reduction in cash.” 

The report found that some companies, pushing for compensation above the industry's 50th percentile, suffered from a "Lake Wobegon Effect," citing radio host Garrison Keiller's fictional locale where "all the children are above average."

Officials within Feinberg's office did not seem convinced, telling SIGTARP, "If they were better than the 50th percentile, they wouldn’t be having discussions with [us] in the first place.”

While the report cites several examples of executives complaining about pay restrictions, it also notes that officials within the Treasury also cautioned against harsh cuts, worrying that onerous restrictions could make it tougher for companies retain talent and pay back the billions they were lent by the government.

"Feinberg told SIGTARP that he was pressured by other senior Treasury officials and was told to be careful, that AIG owed a fortune, and that Treasury did not want it to go belly up," the watchdog wrote in its report. However, Feinberg also said no one superceded any decisions he made.

The government still owns a 77 percent stake in AIG, according to SIGTARP.

The ultimate takeaway of all this, from SIGTARP's perspective, is that the pay czar's efforts to curb executive pay at ailing firms seem to have little lasting effect. Companies that have already exited government support have increased their pay packages, and those still receiving assistance said they would remove their restrictions as soon as they do the same.

Instead, SIGTARP said it was up to regulators to ensure that executive compensation practices line up with the long-term health of the financial firms they run, as pay practices that rewarded short-term risk-taking helped sow the seeds of the financial crisis.

"Taxpayers are looking to the regulators to protect them so that history does not repeat itself," SIGTARP wrote.