Pay czar speaks out
Posted: Thursday, October 22, 2009 6:19 PM by Sam Singal
By Rich Gardella, NBC News producer
If you watched Lisa Myers' report on executive pay tonight, you might be interested in knowing more of what the Obama Administration's point man on the subject had to say. Kenneth R. Feinberg, officially known as the Special Master for TARP Executive Compensation and unofficially known as the Obama Administration's "pay czar," presided over a "pen and pad" media briefing at the Treasury Department this afternoon.
Reporters typically attend these events and scribble and type like mad to record what's said. Today, approximately 100 reporters (by my very rough visual count) filled chairs in the Treasury Department's "Media Room."
The purpose of today's briefing was to announce and describe Feinberg's decisions on compensation packages for the top 25 executives at 7 firms which received "exceptional" TARP assistance.
For official details on the Special Master for TARP Executive Compensation's first rulings.
Feinberg sat at a small table at the front of the room and began with extemporaneous remarks.
He described his assignment as "very, very difficult."
He said he was "extremely sensitive" and "extremely sympathetic" to public outrage and concern about how much compensation executives were continuing to pocket despite the substantial federal TARP bailout funds their companies had received. But his determinations were not based in any way on this public outrage, because they could not be: the statute which created his job specifically laid out how he was supposed to go about it. Factoring in public outrage was not part of it.
But the outrage is reflected in the most important part of his mandate:
"These companies owe billions in taxpayer money," Feinberg stated. His job is to "get that money BACK."
Feinberg said his job, as described by law, is to carefully balance several requirements:
* to make sure that compensation packages were designed to get money back to taxpayers from these 7 companies
* to avoid incentivizing excessive risk for the companies
* to make sure compensation was linked to the company's performance - so that executives only do well if company does well
* to make sure key executives get compensated enough to stay on the job, stay at the companies long enough to help turn them around.
Feinberg itemized some of the key goals which he says guided his work and are a part of his decisions:
* to substantively reduce the amount of money the 7 companies are paying in guaranteed cash salaries
* to instead give executives compensation in the form of a real stake in the companies' future success - "salarized stock" which the executives must hold for at least 4 years, and potential additional stock compensation - only if and when the company fully repays the taxpayer for the TARP (aka bailout) money.
He said two things stuck him about the compensation data the companies submitted to him:
* the compensation amounts were generally too high
* the compensation was not in the right mix - too much cash, not enough stock.
Feinberg predicted some will respond to his decisions by saying, you overpaid.
Others will say, you underpaid.
Still others will say, you paid about right.
He said he was "sensitive" to all of these reactions, and understood each of them. But that by following the law and engaging in a delicate balancing act, the result had to be the decisions he made.
He said he was trying to change corporate practices, but "what I do not accept," Feinberg said, is vindictive or punitive measures, because that sentiment is "nowhere" in the statute or the Treasury regulations. That's not part of the law, he added, and should be against the law.
After his statement, Feinberg took questions from the audience. Here's a sample:
What time period of compensation is affected by these decisions today?
Feinberg explained that his decisions today only affect the period of November and December 2009. The reductions in cash compensation are only for those two months of this year. With a few isolated exceptions, these executives do not have to repay compensation already collected this year.
We're not going to go back," Feinberg said, "and ask people to repay" money that they "already earned."
Feinberg said the process begins anew in January. All 7 companies - and their top 25 executives - will remain under his jurisdiction as Special Master as long as these companies have not fully repaid their TARP money.
How were the negotiations? Were the companies cooperative?
Feinberg said the companies were "very very cooperative" throughout the process, although at times negotiations were "intense."
He said he appreciated that with one exception at AIG, the companies "voluntarily" agree to roll "every single" contract for cash compensation from cash to stock rather than insisting that the contracts be honored as written.
Was removing certain executives a possibility?
Absolutely not, Feinberg said, because that's not part of his job. He asserted that he is not in the business of micromanaging these companies and has no authority to do so. In fact, he said, his mandate is very limited. His sole responsibility was to determine appropriate compensation packages for the 175 top executives at the 7 companies who'd received "exceptional" federal TARP (bailout) money.
Feinberg rejected the shorthand nickname he's acquired in the media through his role as Special Master: Obama's "pay czar."
"I do not approve of the characterization," Feinberg said. "I'm no czar."
Does/did the President have the right to veto any part of his decisions?
Feinberg said he thought not, and was unequivocal: "the White House has played absolutely no role whatsoever" in his decision-making…there's been zero intervention by the White House in this entire process."
Did he think his actions would have an impact beyond these 7 companies?
He said he did not know, but hoped that his decisions might serve as a model or template for restructuring executive compensation at other firms which were not part of his jurisdiction. He said he "liked to think" that these new standards "will be voluntarily picked up in the marketplace," adding that it would be "a lost opportunity" for the broader marketplace to not "take advantage of what we've learned."
At the end of the day, Feinberg concluded, he thinks the executive compensation decisions announced for the 175 executives at the 7 companies today are efforts the public, the companies themselves and he himself "can find to be pretty good work."
That said, he mentioned that the companies have 30 days to appeal his decisions, and by law he must and will consider any and all appeals.
