White House to slash salaries for execs

NEW YORK — The Obama administration plans to order companies that have received exceptionally large amounts of bailout money from the government to slash compensation for their highest-paid executives, according to people familiar with the decision.

The cuts will affect 25 of the most highly paid executives at each of five major financial companies and two automakers, according to the sources, who spoke on the condition of anonymity. Cash salaries will be cut by about 90 percent compared with last year, they said.

The administration also will curtail many corporate perks: use of corporate jets for personal travel, chauffeured cars and country-club fee reimbursement, to name a few, sources said. Any executive seeking more than $25,000 in special perks will have to apply to the government for permission.

In making the ruling, the administration's "pay czar," Kenneth Feinberg, will be inserting the government as never before into pay decisions traditionally made in corporate boardrooms. His decree, which the Treasury Department expects to be announced today, will culminate a months-long review prompted by public outrage over outsize paydays at failing companies saved with taxpayer money.

The seven companies under Feinberg's purview are Citigroup, Bank of America, General Motors, Chrysler, GMAC, Chrysler Financial and American International Group (AIG).

These companies received about $250 billion in bailout funds from the Troubled Asset Relief Program, or TARP, adopted last year by Congress, and benefited from tens of billions of dollars more in government guarantees and other support. The seven companies have repaid a total of $2 billion.

Feinberg, who was named special master on compensation in June, has sole discretion to set compensation for the five top executives plus the 20 highest-paid people after them at each of the seven companies.

For months, he has been meeting frequently with officials at each of the firms to negotiate executive-pay arrangements. In August, each company submitted detailed compensation plans for their top 25 earners. Under the Treasury's rules, Feinberg had 60 days to make a determination. His decisions are binding.

Under Feinberg's plan, an executive who received $1 million in cash salary last year would get $100,000 this year.

But executives can still receive additional salary in stock, according to a source with knowledge of the matter. The portion of salary given in stock would vest immediately, although executives will have to wait two years before redeeming the shares. Even then, they will be able to cash in on only a third of that stock. The executives will be able to cash in another third after three years and the rest after four years. Because it is considered salary, executives get to keep the stock even if they leave their employers.

The final component of an employee's compensation under Feinberg's plan would come in the form of long-term stock. The awards would be based on performance and could be redeemed after three years, or sooner if the company repays its government aid, the source said.

Not every employee under Feinberg's purview will receive all three components of the pay package.

For example, executives at the Financial Products unit of AIG — widely blamed for the insurer's downfall — will receive only a base cash salary, the source said. None of the AIG unit's employees will receive more than $200,000.

Executives at Chrysler Financial — the automaker's lending arm, which is winding down operations — will also receive only the cash salary component, the source said.

The plan will have no direct impact on firms that did not receive government bailouts or that already have repaid loans they received from the federal government, leaving unclear what effect it will have on the broader issues relating to executive compensation and income inequality.

Firms such as Goldman Sachs, JPMorgan Chase and Morgan Stanley received tens of billions of dollars in loans and loan guarantees from the government, but because they have returned the loans, they are no longer under any pay restrictions.

Chrysler officials said Wednesday that the company worked closely with Feinberg in developing the compensation plan.

GMAC said it had yet to be notified about his decision and declined to comment.

Bank of America, Citigroup, AIG, GM and Chrysler Financial also declined to comment.

The extent of the pay cut for most of the 175 individuals affected at the seven companies will be less severe than the average for the overall group. That's because the average figure is skewed by at least a few special cases.

For example, Citigroup initially proposed a pay package for star trader Andrew Hall that included a $100 million bonus, according to two people familiar with the matter. But the bank submitted a revised plan after reaching a deal to sell Hall's Phibro unit to Occidental Petroleum and defer Hall's compensation until 2010, when it would no longer fall under Feinberg's purview. The revised plan now lists Hall's 2009 bonus as zero, people familiar with the matter said.

Already, Feinberg has exerted influence over executive compensation in several ways. For example, he persuaded departing Bank of America Chief Executive Ken Lewis not to take any compensation for his work this year after the bank received $45 billion in government aid. Because of Lewis' contract with the bank, he still is to receive nearly $70 million in retirement money, something Feinberg can't legally prevent.

Material from The New York Times is included in this report.