Few Fled the Companies Constrained by Pay Limits - 23 March 2010

http://dealbook.blogs.nytimes.com/2010/03/23/few-fled-the-companies-constrained-by-pay-limits/

By ERIC DASH

For
months, Wall Street banks and the troubled automakers feverishly
protested that their top executives would flee if they were not lavishly
rewarded for their talents. New data, however, suggests the departures
were more of a trickle than a flood, Eric Dash reports in The New York
Times.

Of the 104 senior executives whose pay was set by the federal pay
regulator in the last two years, 88 executives, or nearly 85 percent,
are still with the companies even though their pay was drastically cut
back, according to people briefed on the government data.

The relative stability, at least within the executive suite, suggests
that a soft job market, corporate loyalty and personal pride helped
deter the feared management exodus at the companies hardest hit by the
pay rules.

Kenneth R. Feinberg, the special master for executive compensation,
is expected to release those findings on Tuesday when he formally
approves the 2010 pay packages for last year’s 25 highest earners at
five companies that received multiple bailouts. By the end of next
month, he is expected to complete the formula that those companies will
use to set the pay of the next 75 highest paid employees.

Pay for top earners at those companies, on average, is expected to
fall by 11 percent from 2009, to $1.62 million, according to people
briefed on the situation. Compensation is down nearly 77 percent from
2008. And this year, more than 70 percent of all approved compensation
is expected to be given in the form of stock instead of cash.

Mr. Feinberg reviewed the 2010 pay packages of 119 executives at five
companies the government bailed out more than once. Those companies
include the American International Group, GMAC
Financial, General
Motors as well as Chrysler
and its auto financing unit. Citigroup and Bank
of America, whose pay packages needed Mr. Feinberg’s
approval last year, are no longer subject to the scrutiny because they
repaid their bailout money in December.

Late last year, Mr. Feinberg completed a similar evaluation of 2009
pay at those companies. His reviews captivated Wall Street and created a
template for other banks to overhaul their pay practices.

Still, Mr. Feinberg’s actions did little to rein in the industry’s
huge payouts. Most of Mr. Feinberg’s pay rulings, for example, were in
effect only for the final few weeks of 2009 — and affected only a
handful of the most troubled companies.

That left the other Wall Street firms that were not subjected to his
rules free to pay their employees as much as they wanted. To the dismay
of many critics, compensation levels across the board surged to near
their precrisis heights in 2009 as trading profits quickly rebounded.

Now, Wall Street is bracing for yet another backlash after news
leaked that Mr. Feinberg was planning to send letters seeking
compensation data from Goldman Sachs, Morgan
Stanley, JPMorgan Chase and the 416 other
companies that had accepted taxpayer money. He plans to examine awards
made from October 2008 to mid-February 2009 to their 25 highest earners
who had annual pay packages of more than $500,000, according to a person
close to the situation.

The move will not highlight the huge payout of Andrew Hall, the
former Citigroup energy trader who collected nearly $100 million in 2008
but left the bank last fall to avoid a public showdown with Mr.
Feinberg over his 2009 pay. That is because the bank paid his bonus
before the review period.

Mr. Feinberg is required by law to determine whether any of those
awards were “contrary to the public interest” but has little formal
authority to rein in the amounts. He could, however, use his bully
pulpit to encourage the companies to renegotiate payments or urge
individuals who have since left the firms to voluntarily give back some
of their pay.

At the five companies whose 2010 pay he must formally approve, Mr.
Feinberg has held the line on restricting the use of cash salary and
bonuses. Officials at some of the companies had fiercely insisted that
they needed to pay hefty salaries to retain senior executives and allow
them to maintain a comfortable living standard, according to people
close to the talks.

Mr. Feinberg countered by lowering cash payments and awarding more
stock. His rulings will take effect immediately, with amounts
retroactively adjusted for any money paid in the first few months of
2010.

Officials at those five companies declined to comment before the
announcement, or did not return phone calls seeking comment.

General Motors, for example, wanted to pay 20 of its 25 highest
earners cash salaries of $500,000 or more, according to people close to
the negotiations. Mr. Feinberg approved that amount for only eight
executives, including Edward R. Whitacre, G.M.’s new chief executive.
His $9 million pay package includes a $1.7 million cash salary, with the
rest in stock.

At Chrysler Financial, only eight people have total pay of more than
$500,000. At Chrysler and GMAC, none of the 25 highest earners are
expected to receive a cash salary of more than $500,000. Michael
Carpenter, GMAC’s new chief executive, is receiving his entire
compensation in stock.

GMAC, the only company to receive three helpings of taxpayer aid,
initially offered Mr. Carpenter a $9.5 million pay package. Mr. Feinberg
rejected that, according to people close to the situation. Mr.
Carpenter will now receive $8 million of so-called salary stock, which
he cannot sell for at least three years.

Mr. Feinberg is also expected to announce that he plans to wait until
next year to approve any long-term stock awards to GMAC’s top earners,
according to people briefed on the situation. GMAC will have to meet
certain core profit goals before individuals can receive payouts.

And A.I.G., the troubled insurance giant which set off a firestorm
over excessive pay last year, is expected to lower cash compensation by
63 percent. Mr. Feinberg froze the 2010 cash salaries for five of six
top earners who worked at the A.I.G. Financial Products Group. Those
employees, who received a retention bonus in 2009, will be eligible for
additional salary in the form of stock.

All told, for the 119 executives whose pay Mr. Feinberg must approve
this year, cash compensation is expected to be about $469,777, down
nearly half from 2008, according to people briefed on the data. About 97
executives, or 82 percent of those reviewed, will receive a cash salary
of $500,000 or less.

Mr. Feinberg’s review also comes as almost every regulator in
Washington has jumped on the bandwagon to rein in excessive risk-taking
and pay.

The Federal Reserve, for example, is conducting side-by-side
comparisons of the pay practices of about two dozen of the largest
banks. Officials there are also expected to approve final compensation
rules in the coming weeks.

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