The Advisors' Blog

– Ted Allen, RiskMetrics’ ISS

Notwithstanding predictions of an exodus of executives from companies under U.S. government oversight, 84 percent of the executives whose compensation was cut last year by the federal “pay czar” in October were still at their firms early this year, according to Kenneth Feinberg, the Treasury Department’s special master for executive compensation.

This finding was among those in a March 23 report on Feinberg’s 2010 pay rulings for 119 senior executives at five companies–American International Group, General Motors, GMAC, Chrysler, and Chrysler Financial–that received “exceptional” assistance from the federal government’s Troubled Asset Relief Program (TARP). News reports suggest that a weak economy and loyalty to companies were factors that may have reduced executive turnover.

Feinberg originally had oversight over the 25 highest-paid executives at seven firms, which then included Bank of America and Citigroup. In late October, he reduced their total compensation by about 50 percent on average from 2008 levels. Bank of America and Citigroup since have repaid their TARP assistance and no longer are subject to Feinberg’s authority.

Under Feinberg’s latest round of pay rulings, the cash pay for the covered executives declined by 33 percent on average from 2009 levels, 82 percent of them received cash salaries of $500,000 or less. Feinberg said he also reduced total compensation at AIG, GMAC, and Chrysler Financial by about 15 percent compared with the pay these executives received in 2009; GM and Chrysler were excluded from this total due to their bankruptcy restructurings in 2009. At AIG, Feinberg said he succeeded in making sure that the executives at the company’s Financial Products unit repaid the full $45 million they pledged to give back from previous bonuses.

Feinberg said his rulings also reaffirm the principles announced last year to bring executive pay into line with “long-term value creation and financial stability,” including: a majority of compensation must be paid in stock that is held for the long term; and incentives may be paid only if objective performance results are achieved, and must be subject to a clawback if results prove illusory. Feinberg also has extended his $25,000 cap on executive perks and continued to freeze supplemental retirement plans.

In addition, Feinberg issued a letter to all 419 companies that received TARP assistance prior to Feb. 17, 2009, requesting that they respond within 30 days and provide information on compensation paid to their “top 25” highest-paid executives prior to that date. As authorized by the American Reinvestment and Recovery Act of 2009, Feinberg said he will review those payments to determine “whether any payment was contrary to the public interest” and whether “to negotiate reimbursements to the federal government.”

Meanwhile, as I blogged recently, the AFL-CIO is leading a charge to push shareholders to vote against pay packages at financial institutions this proxy season, leveraging the say-on-pay items on their annual meeting agendas.