Treasury: Cuts start with '10 pay

WASHINGTON - The Treasury Department yesterday ordered seven companies that received billions of dollars in government bailouts to halve total compensation for their top executives. But the big reductions will not apply to pay earned before November.

Kenneth Feinberg, the Treasury official leading the pay review, said average salaries for the top 25 executives would be cut 90 percent starting next month.

The action will apply to the top executives at Bank of America Corp., American International Group Inc., Citigroup Inc., General Motors Co., GMAC L.L.C., Chrysler L.L.C., and Chrysler Financial.

Meanwhile, the Federal Reserve has introduced a proposal that would police banks' pay policies to ensure they do not encourage employees to take reckless gambles like those that contributed to the financial crisis.

Unlike the Treasury plan, the Fed proposal would cover almost 6,000 banks, including many that never received a bailout. But the central bank would not set compensation. Instead, the Fed would review, and could veto, pay policies that could cause too much risk-taking by executives, traders, or loan officers.

Treasury's "pay czar," Feinberg, said the government did not want to make executives of the seven bailed-out companies return compensation already received this year. Instead, the reduced pay levels will be the base for salary decisions in 2010.

The executives will still be subject to compensation limits as long as their companies are receiving support from the $700 billion bailout fund. Their total compensation was being cut in half, on average.

Cash salaries will be limited to $500,000 for more than 90 percent of affected employees. Personal expenses for such perks as company autos and corporate jets will be capped at $25,000 without approval from Feinberg's office for higher payments.

Earlier this year, Congress, responding to outrage about huge bonuses being paid to AIG executives, amended the bailout law to require that compensation at companies getting exceptional assistance be curbed. Feinberg has been reviewing compensation packages since August and described the negotiations as "intense." Under the law, the only avenue of appeal is to ask Feinberg to review his decisions.

Smaller companies and those that have repaid the bailout money, including the Goldman Sachs Group Inc. and JPMorgan Chase & Co., are not affected by the plan.

Feinberg restructured the pay packages for top executives to provide a base salary and a portion described as "stock salary." The employees will be required to hold the stock for two years and then can sell only one-third of the stock payment each year for three years.

A third category, called "long-term restricted stock," is not guaranteed. This category can only be paid to an employee once a company has repaid its bailout money. Feinberg said his goal was to tie compensation more closely to long-term performance.

In one pay plan he approved, the three highest earners at Citigroup will receive a base salary of $475,000. Each executive also will be paid between $5.6 million and $5.8 million in company stock to be redeemed beginning in 2011. The third category of long-term restricted stock will equal $3 million for each executive.

Under the separate Fed proposal, the 28 biggest banks would develop their own plans to make sure compensation does not spur undue risk-taking. If the Fed approves a plan, it would be adopted, and bank supervisors would monitor compliance.

At smaller banks, Fed supervisors will conduct reviews. Those banks do not have to submit plans.

The Fed refused to identify the 28 banks. But Citigroup, Bank of America, and Wells Fargo & Co. are usually included on such lists.