Executive-pay plans face scrutiny

Kenneth Feinberg's mandate to set pay guidelines for top managers at seven companies bailed out by the U.S., including Bank of America CEO Kenneth Lewis, may set a template for Wall Street compensation.

"He's really the administration's spokesperson for what's acceptable compensation," said Mark Borges, a principal at pay consultant Compensia. "Companies will have to pay attention to what he says."

Feinberg, the Obama administration's "special master" on executive pay, is due to receive compensation proposals by today from Citigroup, AIG, Chrysler, Chrysler Financial, Bank of America, GMAC and General Motors. The companies must tell him how they plan to pay the 25 top-earning employees. Feinberg will rule on the plans within 60 days after they're completed.

Governments worldwide are examining the pay of bankers blamed for fueling the worst financial crisis since the Great Depression.

The administration proposed pay measures in June, aiming to reduce incentives that led executives to take excessive risks, and to quell a political outcry over bonuses at AIG.

Treasury Secretary Timothy Geithner has blamed pay standards tied to short-term profit for contributing to the crisis. New York Attorney General Andrew Cuomo said last month that nine banks getting U.S. aid paid $32.6 billion in bonuses last year.

Bonuses are already set to rise next year, according to pay consultant Johnson Associates.

The incentive compensation for employees in fixed-income divisions of banks may jump 40 to 50 percent from last year, the firm said. Bonuses at asset-management firms may fall as much as 35 percent, the report showed.

Feinberg, a 63-year-old Washington, D.C., lawyer known for mediating disputes over compensation for damages from the Sept. 11 attacks, declined to comment on this week's proposals.

In an interview in June, shortly after being named to the unpaid post, he said he won't "impose my will" on companies. "I will consult with them and work with them," he said.

"We're in active discussions with him much as we were with the Treasury before he was appointed," GMAC Chief Financial Officer Robert Hull said earlier this month.

In a second phase, Feinberg will decide on pay packages for the next 75 highest-paid employees at the companies.

While the initial proposals won't be released publicly, Feinberg's findings will be made public in a way that doesn't violate individual privacy rights, a person familiar with the matter said.

Feinberg's decisions will pressure other financial institutions to adopt similar pay practices even if they aren't obligated to do so, Borges said. Goldman Sachs and Morgan Stanley are among banks that have repaid government funds, in part to avoid government pay limits.

Goldman Sachs drew criticism from lawmakers last month when it set aside a record $11.4 billion for employee pay.

"If Feinberg comes out and says Bank A wanted to compensate its high-earning employees a certain way but he didn't like it, it's going to be awful tough for another company to use a similar program without investors saying there's a problem with that," he said.

One of Feinberg's most important tools is his authority to impose so-called clawback provisions, said Frank Glassner, CEO of Veritas Executive Compensation Consultants. Clawbacks set aside portions of employee bonuses that can be recouped "if the payment was based on materially inaccurate performance criteria," according to the June pay measures.