WASHINGTON, Oct 23 – The Obama administration has opted to slash executive salaries at firms rescued by taxpayer bailouts, cutting cash payments by 90 percent amid a public backlash at bloated Wall Street bonuses.
In a dramatic government swipe at big business as unemployment nears 10 percent and the economic crisis reaps a painful toll, President Barack Obama\’s corporate pay czar also hacked away at corporate perks and "golden handshake" payoffs.
The US Federal Reserve meanwhile fired its own shot at the corporate gravy train, unveiling new rules to curb pay awards at top banks that encourage excessive risk-taking which imperils the wider financial system.
Treasury official Kenneth Feinberg cut cash payouts to the 25 top executives of seven bailed out firms by an average of 90 percent, capping salaries at half a million dollars for most, and reducing total compensation by an average of 50 percent.
Obama, who has expressed outrage at corporate greed and out-of-control Wall Street risk-taking, said Feinberg had taken "an important step forward" in curbing financial excess.
"We don\’t disparage wealth, we don\’t begrudge anybody for doing well, we believe in success.
"But it does offend our values when executives of big financial firms — firms that are struggling — pay themselves huge bonuses, even as they continue to rely on taxpayer assistance to stay afloat."
The restrictions apply to firms which took the most money from the 700-billion-dollar Troubled Asset Relief Program (TARP) set up by the Bush administration last year to stave off a complete financial meltdown.
Those affected include some of the most revered names in US corporate history: AIG, Bank of America, Chrysler, Chrysler Financial, Citigroup, General Motors, and GMAC.
Public anger began to boil over when it was revealed earlier this year that disgraced insurance giant AIG was still paying 165 million dollars in bonuses despite the huge cash injections by Washington.
The issue was also at the fore at the G-20 summit of developed and developing nations in Pittsburgh last month.
Record bonuses lapped up by executives of other firms blamed for helping unleash the financial storm have further fueled the populist fire, with little sign the wider jobs crisis is about to abate.
Feinberg\’s measures are designed to reward long-term success of executives who build firms rather than seek get-rich-quick profits, and turn existing cash guarantees held by executives into long-term stocks.
Minimizing the threat of systemic risk was also a prime goal of the Fed\’s new compensation guidelines.
"The Federal Reserve is working to ensure that compensation packages appropriately tie rewards to longer-term performance and do not create undue risk for the firm or the financial system," said Fed chairman Ben Bernanke.
The proposed rules stop short of specific pay caps or dollar targets for bonuses or commissions, but the Fed could intervene to compel compliance by 28 "large, complex banking organizations."
Obama appointed Feinberg to the new post of "special master" in June, with powers to reject "excessive or inappropriate" salary plans from firms getting taxpayer help.
The corporate pay czar said he hoped his actions would set an example to other companies that have not had to resort to taxpayer generosity to survive.
"I would hope, voluntarily, that corporate America would take a look at the structure that we have developed here, involving less cash for salaries, more long-term stock tied to company performance," he told CNN.
But he stressed that he did not seek to expand the limits beyond the seven firms.
"It\’s not a good idea for the United States government to start micro-managing compensation practices at American businesses," he said.
"But that\’s not this case. These are… seven specific companies that are, in effect, owned by the taxpayers of the United States."
Critics have complained at government interference in the free market and warned that the pay cuts may see already struggling firms lose top executive talent to competitors not subject to pay curbs.
Feinberg brushed aside those fears, saying he thought the "right balance" had been struck with the new salary limits.
General Motors, which like Chrysler has benefited from tens of billions of dollars in emergency government loans in a bankruptcy proceeding, said it would accept the new measures.
"Following a collaborative and constructive review of GM\’s executive compensation, GM is adopting the changes to its executive compensation as outlined by the special master," the company said in a statement.
Feinberg also sought to curtail some corporate perks offered to executives, capping them at 25,000 dollars.