TOPICS > Economy

Pay Czar Imposes New Caps on Executive Salaries

March 24, 2010 at 12:00 AM EDT
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The Obama administration's pay czar Kenneth Feinberg has announced more cuts to executive pay for several large companies still receiving government funds. Judy Woodruff spoke with him about those salary decisions.
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JIM LEHRER: Now: the latest from the pay czar on executive compensation.

Judy Woodruff has that story.

JUDY WOODRUFF: When Ken Feinberg was appointed last year, he was charged with finding ways of reducing compensation at companies receiving government bailout money. That has had some success. A number of companies have paid the Treasury back.

But federal law requires Feinberg to order a new review of what more than 400 companies paid their executives right after the height of the crisis. He has done so. And he’s announced new cuts in cash compensation for 119 executives at five companies.

Ken Feinberg joins me now.

It’s good to have you with us again.

KENNETH FEINBERG, special master for executive compensation: Thank you.

JUDY WOODRUFF: So, let’s talk about these 119 earners, five companies. This is AIG, General Motors, and Chrysler and their two financial…

KENNETH FEINBERG: Chrysler Financial and GMAC.

JUDY WOODRUFF: And, in essence, have you granted these in every case less than what the companies were asking for?

KENNETH FEINBERG: Yes, in every case.

JUDY WOODRUFF: But these are still some fairly rich packages, right, I mean, when you add the stock in, over a million dollars in some cases.

KENNETH FEINBERG: Yes, but we don’t know what that stock will be worth. It is no longer compensation tied only to cash. Most of the compensation is now required to be paid in stock, which cannot be redeemed or transferred, except after two, three, or four years.

So, the individual compensation will ultimately depend on the strength and viability of the company where these individuals work.

JUDY WOODRUFF: So, are you satisfied with how that part of the program is working, that you’re getting results that were intended?

KENNETH FEINBERG: Yes. Yes, I am satisfied. I think that we are getting results in terms of how we limit pay and the type of pay. I think that’s important.

JUDY WOODRUFF: Now, these other — these other letters that have gone out, 419 companies — and this include Goldman Sachs — and you were telling me Morgan Stanley, some of the other major banks that are no longer required to report, but you’re saying we want to know what you paid your top people right after the financial meltdown.

But you don’t have the authority to do anything about it; is that right?

KENNETH FEINBERG: Well, first of all, these letters went out pursuant to federal law. I didn’t make this up. The law requires me to send these letters to any company, 419, that ever received TARP assistance.

They have 30 days to respond to my letter. And then I will evaluate the data on compensation and determine whether or not there appears to be payments that are — quote — under the statute — “inconsistent with the public interest” — unquote.

If so, I can use my bully pulpit to try and recover some of this compensation, but I have no enforcement authority under the law.

JUDY WOODRUFF: What does it mean, bully pulpit? I mean, what do you hope to achieve?

KENNETH FEINBERG: Well, I think these companies have been very, very interested in voluntarily complying with my pay prescriptions about cash and stock. They don’t want to be appearing before congressional committees, as some did last year. They want to try and comply.

So, hopefully, if we find — and I haven’t looked at any of this data — this may be perfectly fine, these packages — but if we find some problem areas, we will hope that we can urge the company to repay the taxpayer.

JUDY WOODRUFF: Shame them into doing something different, is that…

KENNETH FEINBERG: Well, or entreat or implore them to do so.

JUDY WOODRUFF: Because you — as you say, you don’t have the ability to force them to do this.

KENNETH FEINBERG: That’s right. But Congress is looking. And I think others are looking. And, hopefully, there will be compliance. Hopefully, there won’t be a problem. I’m not looking to create problems, but the law requires me to do this. And, since federal law requires it, we follow the law.

JUDY WOODRUFF: Now, separately from all this, Ken Feinberg, you have done a study, or you have now gotten the information that refutes, I guess, or doesn’t, at least, conclude what the — what many of these companies were saying, and that is that your restrictions were causing them to lose some of their best people.

Tell us about that.

KENNETH FEINBERG: Well, that’s very, very important. The argument we hear all the time from Wall Street and from other companies: Mr. Feinberg, if you don’t pay high compensation, our key people, critical to the success of the company, will leave.

What we’re finding, by comparing the officials that we paid in 2009 with those very same officials in 2010, is that 85 percent of the same people are still at their desks doing the same job at these companies. I have always been dubious about the argument that people will leave and that they’re irreplaceable, that we need them to compete.

And I think the statistics demonstrate that these officials are loathe to walk away and go elsewhere.

JUDY WOODRUFF: But you still hear these companies saying, we’re losing some of our smartest people. There is a brain drain.

KENNETH FEINBERG: You hear that. You hear that all the time. And we must, under the law, take that into account. I don’t want to claim that we’re ignoring that.

We just — we don’t give it as much emphasis as the companies themselves would have us give it.

JUDY WOODRUFF: When you step back, Ken Feinberg, and you look at all these companies, the ones over which you still have direct oversight, the ones you did have oversight, what effect — what change do you see in the culture of Wall Street? I mean, do you see any shift of any kind?

KENNETH FEINBERG: There is some. Deputy Secretary Neal Wolin at Treasury put it best. There is some small indications early on that companies on Wall Street are voluntarily following the prescriptions we have laid out, low base cash salaries, compensation tied to stock which can’t be redeemed for years to test performance.

It is a little early, I must say, to conclude anything about the impact of what I’m doing with a very small number of companies on the greater community of corporations. We will have to watch this and observe it over a number of years, I think.

But, hopefully, there will be some correlation to what we are doing with what other companies are doing voluntarily.

JUDY WOODRUFF: But you’re saying it may take years before we know?

KENNETH FEINBERG: Well, it’s one thing to watch what companies do in the middle of this economic uncertainty. It’s another thing as to whether or not Wall Street memories, how long those memories will stay in play, whether they will continue to follow it or not.

JUDY WOODRUFF: All right, Ken Feinberg, pay czar, compensation czar, thank you very much.

KENNETH FEINBERG: Thank you.