Fed­eral pay czar won’t chal­lenge banks over $1.6 bil­lion in ‘ill-ad­vised’ pay­outs

Austin American-Statesman - - BUSINESS & PERSONAL FINANCE - By Daniel Wag­ner

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.

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