Kenneth Feinberg, the Obama administration’s “pay czar,” is expected to announce a plan next week that will slash the annual salaries of top executives at the seven largest companies that received federal bailouts.

CNN reported on October 21 that a senior administration official told them about the plan to drastically reduce compensation for 175 executives at AIG, Bank of America, Chrysler, Chrysler Financial, Citigroup, General Motors, and GMAC. Annual salaries for these executives are expected to fall 90 percent on average, with the top 25 highest paid employees at each firm getting an average cut of 50 percent.

The cuts will supposedly help these companies to pay back the bailout money they received as quickly as possible. CNN said that another source in the Treasury Department believes Feinberg is “trying to strike the balance” between looking after taxpayers and permitting the bailout recipients to “grow their way out of TARP.”

The Wall Street Journal has reported that Feinberg will order changes in organizational structure, such as forbidding the same person to be both chief executive officer and chairman. Other reports indicate that the plan will be especially hard on AIG’s Financial Products division, which was responsible for the company’s downfall. No one there is expected to take in more than $200,000 in total compensation.

Last week Feinberg “suggested” to outgoing Bank of America CEO Ken Lewis that he should refuse to take a salary or bonus for 2009. Lewis acquiesced, though he should still receive a minimum of $53 million in pension benefits when he retires.

Some executives have opted for preemptive action. For example, Citigroup chief Vikram Pandit made it known earlier this year that he would take an annual salary of $1 with no bonuses until his company is profitable again. To get an idea of the magnitude of this pay cut, Pandit received compensation worth $10.8 million in 2008.

As for commentary on the matter, the Treasury Department, AIG, Bank of America, Chrysler Financial, and GM reportedly had nothing to say. Chrysler, Citigroup, and GMAC were somehow unavailable for comment.

Some experts have expressed concern that the government’s interference will only further hurt these firms, driving the most talented individuals to seek employment with other companies not subject to Feinberg’s heavy hand. JPMorgan Chase and Goldman Sachs would certainly be willing to consider hiring any who are truly skilled.

Instead of letting the free market decide what firms remain in business and which employees perform well enough to retain their jobs, the government has interjected itself as the final arbiter. Ironically, by creating large financial incentives for executives to go elsewhere, the government may be setting up companies to fail and almost guaranteeing that they will be back groveling for more bailout money in the future.

Photo of Kenneth Feinberg: AP Images

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Always American said:

... Is The United States of America moving from a Republic to an Oligarchy? That is the question. Know your (our) history! It is imperitive or we will lose our Republic. Educate yourself and others. Keep the Faith.

October 22, 2009

Thomas Paine said:

Trivia Question When was the first time the Czar term was used in Washington for these so called Staff positions. I thought it was first used mid-way through Bush's term. However, I watched a movie: Traffic, released in 2000 in which Michael Douglas played the role of the Whitehouse "Drug Czar". Anyone heard it before that?

October 22, 2009

Bonnie said:

To Thomas Paine The term "drug czar" goes back to at least 1982 under good old Ronald Reagan. Surprised? I'm not.

October 22, 2009

Bonnie said:

... If memory serves me correctly, the position goes back as far as Nixon. I can't remember if it goes back further than that, nor do I remember if the term "czar" was used. I do remember it in use during the Reagan years.

October 22, 2009

Taym said:

Csar's = Bad News The true meaning of Csar (sometimes Tsar) is quite scary. Wikipedia (under Tsar) says... Tsar or czar, is a Slavic term with Bulgarian origins used to designate certain monarchs. The first ruler to adopt the title tsar was Simeon I of Bulgaria [2] As a system of government, it is known as Tsarism. Originally, the title Czar (derived from Caesar) meant Emperor in the European medieval sense of the term, that is, a ruler who claims the same rank as a Roman emperor, with the approval of another emperor or a supreme ecclesiastical official (the Pope or the Ecumenical Patriarch). According to Time magazine the first instance of a Csar in the U.S. was during the latter stages of World War I, when President Woodrow Wilson appointed financier Bernard Baruch to run the War Industries Board. This position was sometimes dubbed the "industry czar". It didn't really become popular until the '40's though. Also, according to history, Russia's calling of Tsar's and pushing Tarism, led to the Bolshevik Revolution which ushered in Communism.

October 23, 2009