By Ronald D. Orol, MarketWatch
WASHINGTON (MarketWatch) — Top executives and employees at three big companies that reaped among the largest taxpayer bailouts were paid “excessive” compensation in 2012 even though Treasury officials monitoring their pay had the authority to limit their packages, a key government oversight unit said Monday in a critical report.
At issue are the 2012 pay packages of top executives and employees at American International Group Inc. (NYSE:AIG) , General Motors (NYSE:GM) and Ally Financial (formerly GMAC), three companies that received “exceptional assistance” as part of the Troubled Asset Relief Program implemented to stem the financial crisis of 2008.
Christy Romero, the Special Inspector General for the Troubled Asset Relief Program.
“These companies want to be paid as business as usual,” Christy Romero, who runs the special inspector general office for the Troubled Asset Relief Program, told MarketWatch. “In 2012 they seem to have met no resistance from Treasury. It’s not business as usual because taxpayers had to shoulder their bailouts for many years.”
Because of the size of their taxpayer-funded infusions, the Treasury allowed Special Master Kenneth Feinberg, who was often called the “pay czar” and later his successor, Patricia Geoghegan, to set compensation for the top 25 executives at each of these companies.
According to the report, 68 of 69 executives received pay of $1 million or more, with 16 individuals receiving pay packages of $5 million or more.
It notes that 48 of 69 executives, 70%, received cash salaries of $500,000 or more and 94% received cash salaries of $450,000 or more.
Romero said these payments were generally excessive and many conflicted with a principle set forth by Feinberg, who was in charge of the Treasury’s pay supervision office until September 2010. The principle, Romero noted, was that cash salaries should not exceed $500,000 except for good cause and should “in most cases be well under that amount.”
The report also notes that Feinberg suggested that total compensation at these institutions should target the 50th percentile of comparable positions at similar companies. However, it adds that Treasury approved pay packages exceeding the 50th percentile by about $1.7 million, $1.2 million and $850,000 for three employees of Ally’s mortgage subsidiary.
Treasury also approved all 18 pay raise requests sought by AIG, GM, and Ally in 2012, according to the report. The raises ranged from $30,000 to $1 million.
“The Treasury set the pay in a way that was very deferential for what the companies proposed,” Romero said.
According to the report, the Office of the Special Master said that pay raises were permitted in some instances because certain employees were at risk of leaving, were crucial to the company or they were strong performers.
‘Unique circumstances’
In a Jan. 25 response, Treasury’s Geoghegan said that the office continues to fulfill its requirements, seeking to limit pay while keeping compensation at levels that enable the firms to remain competitive and repay TARP.
Geoghegan noted that AIG’s average total compensation for the top 25 employees was at the 48th percentile of similar positions at comparable companies while GM’s was at the 50th percentile.
She noted however that Ally’s average total pay for the top 25 employes was mid-way between the 50th and 75th percentiles of similar positions “due to its unique circumstances.” She added that the 50th percentile is “merely a benchmark” and not a specific limitation.
The Treasury oversight office approved a $1 million raise for Peter Hancock, the CEO of AIG’s Chartis unit, according to the report. It noted that the oversight office said that he is one of the most important people at AIG.
The special master office also signed off on an increase in salary from $500,000 to $550,000 for an employee of Ally’s ResCap “knowing that ResCap was planning for bankruptcy.” The oversight office noted that the executive was “critical to successful restructuring,” according to the report.
Treasury exiting its positions
The report comes as the Treasury department seeks to exit its positions.
AIG finished repaying its $182 billion bailout in December, which means it is not longer subject to the pay restrictions. The Treasury said its overall positive return on the bailout was $22.7 billion. Earlier this month, the Treasury also set out a “pre-arranged written trading plan” to sell its remaining 300 million shares of GM stock and fully exit its position in the next 12 to 15 months “subject to market conditions.” The government owns a 74% stake in Ally Financial, according to the report.
