Kenneth Feinberg, the Special Master of Executive Pay for the Troubled Asset Relief Program (TARP), emphasized his “very limited role in the public debate over executive compensation” in the keynote address of an academic conference addressing Executive Compensation sponsored by Vanderbilt’s Law and Business Program. He also acknowledged that TARP’s high visibility and the “anger and frustration” of the American taxpayers who funded the program has spotlighted his role in designating the compensation of employees at companies that received significant federal bailout funds through TARP.
See Feinberg’s talk on streaming video
In his talk, Feinberg noted that his jurisdiction was limited to seven major public companies that received bailouts in 2009: Bank of America, Citigroup, AIG, General Motors, GMAC, Chrysler and Chrysler Financial. Feinberg was empowered under the statute to address the 2009 compensation of the top 100 employees in these seven companies, which involved calculating the compensation packages for the top 25 executives in each company and designing the compensation structures for the next 75 top employees. “My mandatory jurisdiction in establishing compensation is very, very restricted by statute,” Feinberg said.
Bank of America and Citigroup repaid the government at the end of 2009, and Feinberg’s jurisdiction for 2010 is limited to the top 100 executives of the five remaining companies. “With such a limited role,” Feinberg asked rhetorically, “why are the American people interested in what I’m doing?” In addition to “anger and frustration on Main Street as to what’s going on on Wall Street,” he acknowledged, “I’m the only government official I know of who actually has authority to calculate individual compensation. It’s one thing for various government agencies to fashion prescriptions about compensation. It’s something quite different when you take the prescriptions and sit down with an adding machine and decide what these executives are going to get in actual dollars.”
Feinberg has based salaries at the companies over which he has jurisdiction on a set of simple principles. “Executives should receive a relatively modest cash-based salary – under $500,000 – as their only guaranteed compensation,” he says. “The rest of their salary will be in the form of ‘salarized’ stock” that cannot be redeemed immediately. His formula also limits executive perks to $25,000 per individual. “No private jets, no country club dues, no golf club outings beyond that $25,000,” Feinberg emphasized. The “philosophic argument” that any government interference in private pay is bad or wrong “is trumped by the fact that my role is extremely limited, and by the fact that the taypayers own these companies,” Feinberg said. His role as Special Master of Executive Pay will continue only “as long as these companies owe the taxpayers money, and all the companies, to their credit, have a plan to repay the taxpayer.”
In cases where companies are contractually obligated to pay executives an amount higher than Feinberg would normally authorize, he seeks to renegotiate their contracts to an arrangement that provides “salarized” stock rather than guaranteed bonuses or additional cash compensation. He is also empowered to “claw back” or recover compensation deemed excessive that was paid to any corporate official in any of the 400 companies that received TARP assistance. “I may do that in companies where there are egregious examples of executive compensation,” Feinberg said.
Feinberg’s keynote address was part of a daylong Executive Compensation Conference was co-sponsored by the Vanderbilt Law Review and the Vanderbilt Law School’s Law and Business Program. Before his appointment as special master for executive pay for the Troubled Asset Relief Program, Feinberg served the federal government as special master for the Sept. 11 Victim Compensation Fund, which distributed nearly $7 billion to more than 5,000 victims and families of the 9/11 terrorist attack on the World Trade Center. He is a partner in Feinberg Rosen, a New York firm he founded in 1993.