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Pay Czar Feinberg Rolls Out Salary Caps on Wall Street Execs

December 11, 2009 at 12:00 AM EDT
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The Obama administration's pay czar, Kenneth Feinberg, has set a $500,000 limit on executive compensation at bailed-out financial firms. In an interview with Judy Woodruff, Feinberg explains the pay cap.
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JUDY WOODRUFF: The public anger over pay and bonuses remains a major issue. And that topic is likely to come up when President Obama meets with bank executives at the White House on Monday.

We take a look now at today’s action on pay, and the larger picture with Kenneth Feinberg, the Treasury Department’s special master for executive compensation.

It’s good to have you with us again.

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

JUDY WOODRUFF: Where did you arrive at this $500,000 cap? How did you reach — get to that number?

KENNETH FEINBERG: Well, we examined all of the data. We heard the arguments of the various companies. We talked to our outside experts. And we concluded that a presumptive amount limit of $500,000, which could be exempted or could be increased in particular exceptional cases, was the appropriate and the best way to go, balancing all of the interests.

JUDY WOODRUFF: And, again, to whom do these rules apply? This is just four companies, and it’s the 26th through the 100th ranking person, by salary; is that right?

KENNETH FEINBERG: That’s right.

JUDY WOODRUFF: So, it’s just a few hundred people.

KENNETH FEINBERG: That’s right, 450 people, by statute. Bank of America is out. They repaid the American taxpayer $45 billion two or three days ago. Chrysler and Chrysler Financial are out because they don’t have 26 to 100 officials that meet that $500,000 limitation, so it is really these four other companies.

JUDY WOODRUFF: And there is no cap on bonuses, though, is that right?

KENNETH FEINBERG: Well, there is not a hard cap on bonuses. But all bonus incentive compensation must come from a pool of money that will be determined by each company separately with the advice and review of the special master’s office.

JUDY WOODRUFF: Ken Feinberg, how much of an affect does this really have, when are you just talking about four companies and 450 people?

KENNETH FEINBERG: Well, that’s the big question.

We’re hoping that the principles that we announced today and that we announced a few months ago will be used as a precedent, that other companies in the United States will voluntarily recognize the wisdom of these principles.

Goldman yesterday and today basically adopted some of the key principles that we announced today, no cash bonuses, long-term incentive pay based on stock that has to be held for five years before it’s redeemed.

As the deputy secretary of the treasury, Neal Wolin said, it’s a small step what Goldman is doing, but they’re following the advice of the federal government and the Treasury.

JUDY WOODRUFF: Now, the argument being made on the other side — and we heard a little bit of that in Kwame Holman’s piece — is that you have got some people saying, well, there may be a brain drain from these companies. If there is a limit, real talent may walk out the door. In fact, some have already done that.

KENNETH FEINBERG: That is a concern. Under the statute, I must take into account the necessity of keeping people on the job, helping these companies thrive, so that they can do what Bank of America did, repay the taxpayer.

The secretary of the treasury has said that is the primary objective here. And it is working. It is working. But I must be cognizant of the danger that we not lose people that are essential to these companies.

JUDY WOODRUFF: Still, what is the main message you want to have? Because the public looks at this. Unemployment is at 10 percent. And they’re saying, wait a minute, these people are still going to be earning up to $500,000, and these are just the middle-tier people at these banks.

KENNETH FEINBERG: The message here must be, first, the taxpayer has a right to get every dime back from the companies that were in such distress financially that they needed the help of the taxpayer in the form of loans.

My primary objective is to get that money back to the people who lent the money to these companies. Secondly, I am hoping that the principles that we have developed, limited cash-based salaries, stock that will be redeemed over a period of years, so that the individual’s compensation is tied to the future financial success of the company, those are principles that we hope will be adopted voluntarily by companies outside of my jurisdiction.

JUDY WOODRUFF: Still, you know that, over time, people expect, the stock market is going to come back. People are still going to be able to earn significant salaries. Do you really believe that rules like these can prevent another financial collapse?

KENNETH FEINBERG: Oh, I don’t think these rules alone will prevent another financial collapse. I think that what happened today in the Congress, what the regulators are doing, other initiatives promoted by this administration, I think, if you look at the entire package, as well as what foreign governments are doing, the secretary of the treasury and the G20 urging foreign governments to do these things, I think, if you look at the whole panoply of reforms together, as a package, there is a real attempt by the federal government to rein in excessive risk-taking on the part of financial services industry.

JUDY WOODRUFF: Well, what about what a couple of these countries have done? In the U.K., in Britain, in France they are taxing these bonuses at just some — what, 50 percent tax. Is that something that would fly in this country, do you think?

KENNETH FEINBERG: I — again, I defer to others. I have enough problems dealing with my own statute.

But I will say this. Although these other countries may try various alternative creative measures, what I find particularly interesting is that, as a result of the secretary of the treasury’s work with the G20, every country seems to be intrigued and interested in this notion of reining in excessive pay. And I think that’s to the good.

JUDY WOODRUFF: Can you comment on what has come out of the House of Representatives today, this financial regulatory reform package?

KENNETH FEINBERG: No. That’s beyond my jurisdiction, beyond my role here when it comes to executive comp.

JUDY WOODRUFF: But let me ask you more. You said a minute ago you — you hope that what you are doing will be — is an example that will be followed across the country, broadly, by corporate America.

How can you make that happen? How do you push that in the direction of reality?

KENNETH FEINBERG: I think that we hope and believe that the principles I have announced, that companies around the country will recognize the validity and the wisdom of these principles, like Goldman has — at least it appears that Goldman has.

The president, on Monday, plans to have a chat with these banks. And I think that the effort must be to convince Wall Street that what we are doing with this limited group of financial institutions and other companies like GM and GMAC, can have a positive impact.

And, hopefully, these companies will recognize, politically and substantively, that they would be well-advised to follow these prescriptions, the way that Goldman has begun to do so.

JUDY WOODRUFF: Kenneth Feinberg, special master for the Department of Treasury, thank you very much.

KENNETH FEINBERG: Thank you.

JUDY WOODRUFF: Good to have you with us.

KENNETH FEINBERG: Thanks.