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Business News/ Home Page / US limits executives pay to $500,000 at 4 bailed-out firms
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US limits executives pay to $500,000 at 4 bailed-out firms

US limits executives pay to $500,000 at 4 bailed-out firms

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Washington: Continuing with its strict compensation regulations for the bailed-out entities—Citi, AIG, General Motors and GMAC—the US government has extended the pay cap for their executives, limiting the annual cash salaries to $500,000.

The US pay czar has imposed new restrictions on compensation for the 26th to 100th highest paid employees at the bailed-out firms. In October, the government had slashed the pay by 50% for the top 25 executives at these four companies.

Exorbitant pay packages on the Wall Street attracted widespread criticism in the wake of the financial turmoil, with many blaming such practices for excessive risk taking.

Kenneth R. Feinberg, the special master appointed by President Barack Obama to look into pay structure at bailed out firms, has asserted that cash should account only for 45% of the total compensation.

Popularly known as the pay czar, Feinberg has noted the decision should be implemented immediately at Citi, AIG, GM and GMAC, which have received billions of dollars from the Troubled Asset Relief Programme (Tarp).

“(Annual) Cash salaries generally limited to USD 500,000 ... Overall, cash is limited in most cases to 45 per cent of total (compensation); all other pay must be in company stock," the pay czar said in a statement on Friday.

At least 50% of compensation of these employees should be held for three years or more, in order to focus more on long term goals of the company.

Going by the pay czar’s latest ruling, all sorts of incentive pay at the four firms should be subject to “clawback" regulations, depending on the long term results. “Any cash incentives must be delivered over two years -- large lump-sum cash bonuses (are) rejected," the statement noted.

Moreover, the practice of giving “substantial cash guarantees to departing executives, regardless of their performance" has been frozen at the four firms.

Among three other entities which received huge bailout funds, Bank of America has been exempted since it has already paid back the rescue funds.

In the case of two other companies—Chrysler and Chrysler Financial—the total pay of their executives is less than $50,000.

Feinberg in October had said that even including the value of stock that must be held for the long term, the total pay package would be reduced by 50% for the 25 top paid executives at the bailed out institutions.

The extravagant executive compensation continues to remain a controversial topic globally, with the UK recently proposing to impose a 50 per cent temporary tax on bonuses paid for British bankers.

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Published: 13 Dec 2009, 01:13 PM IST
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