U.S. News

Few Fled Companies Constrained by Pay Limits

Eric Dash|The New York Times
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For months, Wall Street banks and the troubled automakers feverishly protested that their top executives would flee if they were not lavishly rewarded for their talents. New data, however, suggests the departures were more of a trickle than a flood.

New York Stock Exchange (NYSE)
Oliver P. Quilla for CNBC.com

Of the 104 senior executives whose pay was set by the federal pay regulator in the last two years, 88 executives, or nearly 85 percent, are still with the companies even though their pay was drastically cut back, according to people briefed on the government data.

The relative stability, at least within the executive suite, suggests that a soft job market, corporate loyalty and personal pride helped deter the feared management exodus at the companies hardest hit by the pay rules.

Kenneth R. Feinberg, the special master for executive compensation, is expected to release those findings on Tuesday when he formally approves the 2010 pay packages for last year’s 25 highest earners at five companies that received multiple bailouts. By the end of next month, he is expected to complete the formula that those companies will use to set the pay of the next 75 highest paid employees.

Pay for top earners at those companies, on average, is expected to fall by 11 percent from 2009, to $1.62 million, according to people briefed on the situation. Compensation is down nearly 77 percent from 2008. And this year, more than 70 percent of all approved compensation is expected to be given in the form of stock instead of cash.

Mr. Feinberg reviewed the 2010 pay packages of 119 executives at five companies the government bailed out more than once. Those companies include the American International Group, GMAC Financial, General Motors as well as Chrysler and its auto financing unit. Citigroup and Bank of America, whose pay packages needed Mr. Feinberg’s approval last year, are no longer subject to the scrutiny because they repaid their bailout money in December.

Late last year, Mr. Feinberg completed a similar evaluation of 2009 pay at those companies. His reviews captivated Wall Street and created a template for other banks to overhaul their pay practices.

Still, Mr. Feinberg’s actions did little to rein in the industry’s huge payouts. Most of Mr. Feinberg’s pay rulings, for example, were in effect only for the final few weeks of 2009 — and affected only a handful of the most troubled companies.

That left the other Wall Street firms that were not subjected to his rules free to pay their employees as much as they wanted. To the dismay of many critics, compensation levels across the board surged to near their precrisis heights in 2009 as trading profits quickly rebounded.

Now, Wall Street is bracing for yet another backlash after news leaked that Mr. Feinberg was planning to send letters seeking compensation data from Goldman Sachs, Morgan Stanley, JPMorgan Chase and the 416 other companies that had accepted taxpayer money. He plans to examine awards made from October 2008 to mid-February 2009 to their 25 highest earners who had annual pay packages of more than $500,000, according to a person close to the situation.

The move will not highlight the huge payout of Andrew Hall, the former Citigroup energy trader who collected nearly $100 million in 2008 but left the bank last fall to avoid a public showdown with Mr. Feinberg over his 2009 pay. That is because the bank paid his bonus before the review period.

Mr. Feinberg is required by law to determine whether any of those awards were “contrary to the public interest” but has little formal authority to rein in the amounts. He could, however, use his bully pulpit to encourage the companies to renegotiate payments or urge individuals who have since left the firms to voluntarily give back some of their pay.

At the five companies whose 2010 pay he must formally approve, Mr. Feinberg has held the line on restricting the use of cash salary and bonuses. Officials at some of the companies had fiercely insisted that they needed to pay hefty salaries to retain senior executives and allow them to maintain a comfortable living standard, according to people close to the talks.

Mr. Feinberg countered by lowering cash payments and awarding more stock. His rulings will take effect immediately, with amounts retroactively adjusted for any money paid in the first few months of 2010.

Officials at those five companies declined to comment before the announcement, or did not return phone calls seeking comment.

General Motors, for example, wanted to pay 20 of its 25 highest earners cash salaries of $500,000 or more, according to people close to the negotiations. Mr. Feinberg approved that amount for only eight executives, including Edward R. Whitacre, G.M.’s new chief executive. His $9 million pay package includes a $1.7 million cash salary, with the rest in stock.

At Chrysler Financial, only eight people have total pay of more than $500,000. At Chrysler and GMAC, none of the 25 highest earners are expected to receive a cash salary of more than $500,000. Michael Carpenter, GMAC’s new chief executive, is receiving his entire compensation in stock.

GMAC, the only company to receive three helpings of taxpayer aid, initially offered Mr. Carpenter a $9.5 million pay package. Mr. Feinberg rejected that, according to people close to the situation. Mr. Carpenter will now receive $8 million of so-called salary stock, which he cannot sell for at least three years.

Mr. Feinberg is also expected to announce that he plans to wait until next year to approve any long-term stock awards to GMAC’s top earners, according to people briefed on the situation. GMAC will have to meet certain core profit goals before individuals can receive payouts.

And A.I.G., the troubled insurance giant which set off a firestorm over excessive pay last year, is expected to lower cash compensation by 63 percent. Mr. Feinberg froze the 2010 cash salaries for five of six top earners who worked at the A.I.G. Financial Products Group. Those employees, who received a retention bonus in 2009, will be eligible for additional salary in the form of stock.

All told, for the 119 executives whose pay Mr. Feinberg must approve this year, cash compensation is expected to be about $469,777, down nearly half from 2008, according to people briefed on the data. About 97 executives, or 82 percent of those reviewed, will receive a cash salary of $500,000 or less.

Mr. Feinberg’s review also comes as almost every regulator in Washington has jumped on the bandwagon to rein in excessive risk-taking and pay.

The Federal Reserve, for example, is conducting side-by-side comparisons of the pay practices of about two dozen of the largest banks. Officials there are also expected to approve final compensation rules in the coming weeks.