Kenneth Feinberg has the thorny task of setting pay for 175 of the nation’s top executives—and it’s a job he’s doing pro bono. A prominent Washington, D.C., attorney, Mr. Feinberg is serving unpaid as the special master for executive compensation for the Troubled Asset Relief Program (TARP) at the Treasury Department. He spoke at a GW Law School event on Oct. 23, the day after his decision to sharply curtail executive pay at top banks and automakers became public.
“The key is tying executives’ own compensatory interest to that of the company,” said Mr. Feinberg. His plan eliminates any guarantees beyond salary; reduces cash salary by as much as 90 percent; and ties remaining compensation to long-term stock, a portion of which would only be redeemable once the company pays the government back. It affects the 25 highest paid executives at each of the seven companies that received the most federal dollars: Citibank, A.I.G., Bank of America, Chrysler, Chrysler Financial, GM and GMAC.
Determining how to structure executive pay wasn’t simple, said Mr. Feinberg. His mandate required that he “make sure companies thrive and are able to attract talent, so they can sooner rather than later pay back taxpayer money” but also “make sure the compensation avoids excessive risk.” In addition, he had to balance sharp contrasts in perceptions of worth on Wall Street --where companies fear they will lose top employees to competitors who don’t have to comply with these standards -- and on Main Street, where there’s been “understandable public disgust” at CEOs’ bloated pay packages.
His plan, he said, has received widespread attention “because it’s the first to translate theoretical guidelines into ‘this means x number of dollars.’”
Mr. Feinberg said his next task is designing compensation structures for executives whose pay ranks 26 to 100 in the seven companies. He also has the authority to “claw back” compensation paid to corporate officials at any company that has received TARP funds--a power he’s hesitant to exercise.
“I’m reluctant to reach out and try to get back compensation long since distributed and long since spent,” said Mr. Feinberg. “There may be conditions when I do it but they will be rare and far between.”
He also stressed that the government has not just the right but the responsibility to dictate compensation at companies receiving the most bailout dollars. “As to these seven, the taxpayer owns them,” said Mr. Feinberg. “The government is representing the taxpayer as a creditor seeking to maximize the likelihood that the money will be returned.
“Let’s not get too carried away with the argument that the government is intervening in the private sector. In truth, the government intervened in the private sector to save the private sector,” said Mr. Feinberg.
“We were extremely fortunate to have Kenneth Feinberg as a keynote speaker at our financial regulatory reform symposium the day after he issued his compensation rulings for the companies under his jurisdiction,” said John Buchman, professorial lecturer in law at GW and general counsel and corporate secretary for E*TRADE Bank.
“His remarks were excellent, and I was particularly pleased at the positive media coverage that the GW Law School and its administration, faculty and student body received as a result of Mr. Feinberg's speech,” added Mr. Buchman, who together with several former students, initiated and helped organized the conference.
Titled “Regulatory Reform at the Crossroads: What Is the Right Response to the Financial Crisis?” the daylong conference was presented by the Law School and the GW Banking Law Society. The agenda also included an address by Gary Gensler, chairman of the Commodity Futures Trading Commission, and panels on systematic risk regulation, the proposed consumer financial protection agency, and prospects for international cooperation on capital standards, executive compensation and regulation of derivatives.