Watchdog: Treasury agreed to high executive pay at bailed out companies

The Treasury Department doled out “excessive pay” for top executives at bailed out companies that are unlikely to pay the government back in full, according to a new report.

The government’s official watchdog for the Troubled Asset Relief Program (TARP) said the Treasury Department has regularly relaxed pay restrictions for top officials at General Motors and Ally Financial, even as those companies owed billions to the government, and taxpayers were facing losses on those rescues.

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The top 25 executives at both companies all made more than $1 million for the last two years, and the average executive pay was $3 million. The government finally exited its investment in GM at the end of 2013 and is still selling off stock in Ally.

“Treasury loosened its own pay restrictions for senior executives at General Motors and Ally Financial year after year, even as taxpayer losses in these companies mounted,” said Christy Romero, the special inspector general for TARP. “By loosening restrictions on pay at these TARP companies, despite SIGTARP’s repeated recommendations not to do so, Treasury could be sending the message that much-needed reforms coming out of the financial crisis are no longer necessary or required in exchange for TARP dollars.”

The Treasury Department defended itself from the charges, saying it struck the right balance between limiting executive pay while keeping those companies competitive for top talent. It also said the watchdog’s report contained several “omissions and inaccuracies.”

The report comes as the government has largely exited from its massive rescue of the financial industry and domestic automobile companies, and has even seen returns that exceed the amount spent on the program. But a handful of companies still owe TARP funds to the government, and those holdouts appear increasingly unlikely to ever provide a return on the government assistance as the government sells off its investments at a loss.

At the end of 2013, the government sold off all its remaining shares in GM. While the aid kept the company afloat, taxpayers lost $11.2 billion in the rescue. And the government is still winding down its investment in Ally, formerly known as GMAC. In August, the Treasury Department announced plans to sell off more of that company’s stock, and the government owns roughly 14 percent of the company’s stock. In addition, the agency noted it has earned more in that company than the original investment.

The watchdog report criticized the department for failing to have comprehensive policies in place to determine how much executives at bailed-out companies should be paid. It also said that approving more robust pay for people running companies that are still technically bailed out could open the department up to criticism, and the department could use stricter pay rules to help discourage the type of activity that led to bailouts in the first place.

All told, executive pay at GM and Ally climbed 28 percent from 2009 to 2013, and the number of employees making more than $500,000 tripled during that time. But the Treasury Department noted in its response that top executives saw their pay cut on average by 50 percent when the rescue began.

The watchdog called on the agency to establish more robust policies concerning executive pay, and to seek out independent analysis before signing off on any significant pay boosts.