The Obama administration’s pay czar said his attempts to renegotiate valid pay contracts at bailed-out companies, particularly insurer AIG, has been a “unique challenge,” according to testimony released Wednesday.
Kenneth Feinberg, a Washington lawyer appointed by President Barack Obama last year to decide certain pay packages at companies that received large taxpayer bailouts, said he has had success in reworking “grandfathered” contracts at some of the these firms.
But he highlighted some AIG officials’ refusal to renegotiate their retention payments.
“As a result of officials’ refusals to restructure their cash retention payments, I refused to approve cash salary amounts proposed by the company, which, in light of the retention payments, would have resulted in an excessive level of cash compensation,” Feinberg said in testimony prepared for delivery on Thursday before the House Financial Services Committee.
The committee is holding a hearing to hear government perspectives on pay in the financial industry.
Feinberg has struggled to rework massive retention payments due to employees of AIG’s Financial Products unit, the division largely blamed for bringing the giant insurer to the brink of collapse.
Earlier this month AIG said current and former employees of that unit had so far agreed to accept cuts totaling about $20 million in retention payments, short of a $26 million target.
Other top executives at AIG have also balked at Feinberg’s attempts to rein in pay. Anastasia Kelly resigned as general counsel late last year in protest over pay curbs Feinberg imposed.
AIG’s payment to the Financial Products employees last March triggered demonstrations, including a bus tour of employees’ homes.
Populist anger over Wall Street pay has continued to simmer and has provoked repeated rebukes from the White House.
Feinberg is responsible for setting pay packages at the 25 highest paid employees at five firms that have received “exceptional assistance” from taxpayers: AIG, General Motors, GMAC, Chrysler and Chrysler Financial.
He also lays out compensation structures for the 26th though 100th highest paid workers at those firms.
Feinberg said in his testimony that he is still trying to strike the right balance with a key part of his mandate: shrinking outsized pay packages, but keeping salaries desirable enough to keep the talented people needed to turn these companies around so they can pay back taxpayers.
“The tension between reining in excessive compensation and allowing necessary compensation is, of course, a very real difficulty that I have faced and continue to face in making individual compensation determinations,” he said.
Feinberg has said he will rule on the 2010 pay packages for the top earners at the five firms by the end of the first quarter.
Edward DeMarco, acting director for the Federal Housing Finance Agency, also submitted testimony in which he defended multimillion-dollar pay packages for top executives at Fannie Mae and Freddie Mac, which are in government conservatorship.
DeMarco said the pay packages, which could allow the top executive at each firm to earn up to $6 million a year, were necessary to attract and keep talented managers.
But he also acknowledged the role that compensation played in building up risk at the two mortgage finance companies.
“Our special examinations of accounting failures at each Enterprise in 2003-2006 revealed that badly-constructed compensation incentives contributed significantly to excessive focus on near-term earnings reports to the serious detriment of the enterprises,” DeMarco said.
(Reporting by Karey Wutkowski, editing by Leslie Gevirtz)
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