U.S. pay czar vows to rework 2010 AIG bonuses
By David Lawder
WASHINGTON, Oct 28 (Reuters) – Renegotiating bonuses to American International Group employees is a “top priority,” the Obama administration’s pay czar said on Wednesday, adding he believes he can do so without losing key employees.
Kenneth Feinberg, the U.S. Treasury bailout program’s “special master” for compensation practices, told U.S. lawmakers he will sit down with AIG and its Financial Products unit in January to renegotiate so-called guaranteed retention contracts.
AIG is scheduled to dole out another $198 million to employees of the financial products unit — largely seen as responsible for the firm’s near failure and bailout — in March 2010.
Similar payouts earlier this year drew howls of protest from lawmakers and anger from Americans suffering a long recession brought on by financial crisis.
Companies say they risk losing key employees if bonuses are cut too deeply.
“We will see what we can work out with AIG going forward in an effort to satisfy the statute, satisfy the regulations, satisfy the American people and I view that as a top priority,” Feinberg told the U.S. House of Representatives Oversight and Reform Committee.
Feinberg, who last week slashed cash salaries at AIG and six other bailed-out firms under his jurisdictions by more than 90 percent, said he took pains to retain key employees in his rulings. He added he does not believe large numbers of high-earning employees will leave firms due to the rulings.
By substituting long-term company stock awards for cash, these employees will have an incentive to stay in jobs, work hard and cash in shares that may have a potentially higher value in the long run, he said.
“I think that if you look at at the levels of total compensation that we established in our determination, we figured — I made this recommendation from my conclusion — they won’t jump ship,” Feinberg told the committee.
Feinberg said he would not override legal and binding contracts that he finds excessive, but work to persuade companies and employees to renegotiate them.
He said he has had good luck so far in doing so and AIG, 80 percent controlled by the U.S. government, has been cooperative. In cases where employees will not renegotiate, future pay may be reduced, he said.
SEVEN IS ENOUGH
Feinberg, a lawyer best known for his work overseeing the compensation fund for victims of the September 11 attacks, told lawmakers his authority should not be expanded beyond the seven firms for which he reviews pay plans: AIG, Bank of America, Citigroup, Chrysler Group LLC, Chrysler Financial, General Motors Co and GMAC LLC.
He added, however, he hoped his pay rulings would influence other Wall Street firms to avoid excessive pay plans.
“Hopefully the model that is created in my report will trickle and expand beyond these seven companies,” Feinberg said. “I’m perfectly comfortable, thank you, that I’m limited to these seven companies. That’s enough work for me.”
However, lawmakers viewed with skepticism the notion that Wall Street would voluntarily rein in its multimillion dollar bonus culture.
“It’s like we’re on two different planets. When they talk about multimillion dollar bonuses, it’s like shoeshine money to them,” said Rep. Elijah Cummings, a Maryland Democrat.
He told Feinberg, “I just can’t see how, with all your fine work, that is going to be turned around.”