Pay Czar Will Seek Stricter Clawbacks From TARP Firms

Kenneth Feinberg, Wall Street's "pay czar," plans to ask several financial firms to strengthen clawback provisions in executive pay agreements, but will not require them to recover bonuses paid at the height of the financial crisis, according to a source close to Feinberg.

Kenneth R. Feinberg, the Treasury Department's special appointee for executive compensation.
Kenneth R. Feinberg, the Treasury Department's special appointee for executive compensation.

Feinberg, whose formal title is Special Master for Executive Compensation, is expected to issue a report on Friday that will criticize compensation practices at a number of the 419 firms that received TARP funds.

A source declined to say how many of the firms will be singled out for criticism, saying only that it will be a number in the double digits, include banks both big and small and will criticize firms that have already repaid TARP funds.

Media reports had speculated Feinberg would ask the firms to recover bonuses paid to executives between December 2008 and February 2009.

The source also says firms will be asked to modify any compensation arrangements they currently have with top executives, to include far more stringent clawback provisions than those already in place. If the contracts do not include clawback provisions, they will need to be added.

Since taking the role of pay czar in June of 2009, Feinberg has championed clawbacks as one way to prevent the excessive risk-taking many believe contributed to the financial crisis.

Clawbacks allow a company to recoup bonuses or other compensation paid to employees under certain circumstances, for instance, if the employee is found to have engaged in fraud, or if deals or strategies embraced by the employee cause significant losses for the firm.

While Feinberg's jurisdiction over pay was limited to seven firms receiving exceptional assistance from the government, he has always said he could use the office of the Special Master for Executive Compensation as a "bully pulpit" to force changes in pay within the financial services industry.

It appears this is what he is doing in one of his final reports as pay czar. Following the report on clawbacks, Feinberg will issue a summary report before he leaves the post on August 1, 2010.

In the 13 months he has served as pay czar, Feinberg has also approved incentive programs for executives at the firms under his watch that were light on cash bonuses and heavy on salarized stock.

Salarized stock is included in one year's compensation, but vests over a three year period. The seven firms initially under his watch were Citigroup, Bank ofAmerica , AIG , GM, Chrysler and the finance arms of both automakers.

Citi and Bank of America are no longer required to seek his approval on pay as they have repaid the TARP money they borrowed.

In June, President Obama asked Feinberg to manage the $20 billion dollar fund set up to compensate victims of the BP oil spill. He is leaving the Office of the Special Master for Executive Compensation this month to devote himself to this latest task. No replacement has been named, and it is currently unclear if the administration will appoint a new pay czar.