Federal pay czar won’t challenge banks over $1.6 billion in ‘ill-advised’ payouts
WASHINGTON — Although he lacked the legal authority to compel bailed-out banks to return the $1.6 billion in executive compensation that he had deemed inappropriate, the Obama administration’s pay czar said Friday that he did not attempt to recoup the payouts because he thought shaming the banks was punishment enough.
Kenneth Feinberg said 17 banks receiving taxpayer money from the $700 billion financial bailout made “ill-advised” payments to their executives. But he stopped short of calling them “contrary to the public interest” — language that would have signaled a fight to get the money back.
“This is an 11th-hour, armchair, ‘look back’ quarterbacking,” he said.
Feinberg couldn’t force the banks to repay the money. But the law instructed him to negotiate with banks to return money if he determined that allowing them to keep it was not in the public interest.
He said such a fight could have exposed banks to lawsuits from shareholders trying to recapture the executives’ money. Feinberg said his public shaming of the 17 banks was sufficient.
The report indicates that the companies did not do anything illegal and that 90 percent of the executive payments were made by firms that have fully repaid taxpayers.
“I’m not suggesting we should blink, or turn the other cheek,” Feinberg said in an interview with The Associated Press. “These 17 companies were singled out for obviously bad
Continued from B behavior. The question is, at what point are you piling on and going beyond what is warranted?”
By avoiding using the strongest language in his report, he could criticize the banks without endangering the weak economic recovery, Feinberg said.
“Certain aspects of the financial system still confront fragility,” he said. “I’m not looking to compound that fragility beyond what I thought was necessary.”
Among the companies he let go are two whose bailouts will cost taxpayers billions: American International Group Inc. and CIT Group Inc. Citigroup was the worst offender, handing out $400 million in excessive pay, according to a government source familiar with the report.
Rather than demanding they return the money, Feinberg invited the 17 banks to give their boards of directors more power to withhold pay during future crises. The request was voluntary.
The review covered the period from October 2008 to February 2009. The starting point was when banks began receiving bailout money from the bailout, formally known as the Troubled Asset Relief Program. The ending point was when Congress enacted pay curbs on institutions receiving government support.
Feinberg determined that a total of $1.7 billion in payments were made during that period that would have violated the guidelines adopted later. And $1.6 billion of that amount was paid out by 17 of the country’s largest financial institutions.
Excessive pay was reported at only a small group of the 419 firms examined. The report found that out of the firms receiving taxpayer funds, 240 did not hand out excess pay to any executives. A subset of 116 firms handed out too much money to five or fewer executives.
Feinberg recommended that companies adopt an emergency provision that would allow them to break pay contracts if another financial crisis occurred. If the company’s board determined that the business was in a crisis, the compensation committee would be allowed to revisit pay levels. During the recent financial meltdown, many companies protested that they were legally obligated to meet their compensation agreements with executives.
As his work as pay czar winds down, Feinberg will turn his attention on overseeing the BP oil spill compensation fund.
Kenneth Feinberg Obama administration’s pay czar declines to negotiate with banks for return of compensation, says public embarrassment is sufficient punishment.