In response to criticism regarding bonus pay for executive officials of companies receiving government pay-outs, the Obama administration recently appointed Kenneth Feinberg to regulate the pay of 175 top executives at seven companies receiving levels of government TARP funds not offered to other institutions. Feinberg, who is being referred to as the “Compensation Czar,” is commissioned with rejecting executive salaries deemed excessive. The Wall Street Journal lists the seven companies under the Compensation Czar’s authority as American International Group Inc. (AIG), Citigroup Inc., Bank of America Corp., General Motors Corp., GMAC LLC, Chrysler and Chrysler Financial.
Gene Sperling, a Counselor to the Treasury, explains, “Where a company comes to the U.S. government and the U.S. taxpayer and requires exceptional assistance that is not being offered to their peers that is an exceptional case and that requires us at the Treasury Department to have a stronger fiduciary duty to the taxpayer.” If this is the reason for mandating salary caps on the seven companies now under Feinberg’s authority, what is keeping the government from “owing” this duty to the remaining TARP fund recipients’ shareholders? Democratic Representative Brad Sherman advocates just that. In the Wall Street Journal article, Sherman said, “I would say TARP is an extraordinary departure from free enterprise and even those that got only one infusion … should be viewed as getting extraordinary help.” Other companies receiving TARP funds are already subject to new compensation guidelines which could be viewed as a transition into a czar-like, fully-integrated government control of executives’ compensations.
The expansion of government power into private enterprises has left experts wondering if the Compensation Czar’s powers will remain restricted to companies receiving government funds or will be increased to include widespread, mandated government intervention in private business practices. Bruce Ellig, author of The Complete Guide to Executive Compensation, seems to believe the latter. In a DallasNews.com article, Ellig said, “This is the type of thing that could be a nice great experiment, and they may decide that if the rest of America can’t get its act together, there may be something similar coming through.” He added, “This could be a broad-gauge extension across industries.” In the same article, David C. D’Alessandro, a partner at Dallas law firm Vinson & Elkins LLP who helps companies design pay packages for executives, asks, “Do I think these are test balloons that will result in more government oversight of executive compensation? . . . Not only am I willing to say that is my prediction, I feel very strongly that the Obama administration will succeed in getting a few of these things pushed through . . . The government could conclude ‘why shouldn’t this be a wholesale policy in industries that are doing quite well?’” Fueling the speculation is talk about mandating publicly-traded companies to allow stockholders to vote (nonbinding) on executive salaries.
Naturally, businesses hope to elude the Compensation Czar’s reach. In Dallas, many firms are taking it upon themselves to keep their executives’ salaries in check. While the current pay scheme for many executives is skewed to reflect last year’s pre-stock crash circumstances, upcoming yearly compensation reviews are expected to reflect the current economic situation. Many executives will not be given customary pay raises, and some will even take voluntary pay cuts.
As an aside, an article posted on mindyourowndamnbusinesspolitics.com raised the issue of overcompensated lawmakers. If companies receiving government funds need to be regulated, wouldn’t it follow that lawmakers (whose paychecks are government funds) should receive the same compensation policing? The article stated, “Congress had a major role in the current economic mess, so why hasn’t their compensation been caped? Rank and file members receive $174,000 per year. They still have pensions that are 2-3 times more generous than similarly compensated executives in the private sector, plus perks including excellent health coverage, life insurance, free gym memberships, free parking, and of course world travel.” On top of their salaries for serving in Congress, most lawmakers rake in hefty wages from their personal income sources. For example, the article reported that House Speaker Nancy Pelosi and her husband reported assets worth between $25.1 million and $84.4 million after last year. While no one can expect the Compensation Czar to dig into Congress’ pocketbooks, it remains an interesting thought to consider.