No Empire Building for Pay Czar

He’s called the pay czar, but Kenneth Feinberg came across more like King Solomon than Ivan the Terrible at a House hearing Wednesday.

Feinberg has more power than any of the other czars running around the Obama administration.

They’re really just advisers; his decisions are final. He determines how much compensation should be awarded to the top executives and highest earners at the seven companies that were the largest recipients of Troubled Asset Relief Program investments from the federal government.

Those companies are AIG, Bank of America, Citigroup, Chrysler, Chrysler Financial, General Motors, and GMAC.

His goal, as a representative of American taxpayers, is to get back as much of this TARP money as possible.

It’s a difficult task. Feinberg told the House Oversight and Government Reform Committee that he must balance the need for these companies to pay enough to attract and keep top talent with the need to make sure that compensation is based on their performance and the companies’ long-term financial success.

Feinberg may take a thoughtful approach to these issues, but he doesn’t dither. On October 22, he slashed the overall cash compensation for the top executives at these seven companies by 50 percent. He substituted shares of stock for cash, tying the executives’ compensation to the companies’ profitability, and permitted incentive payments of additional stock that vests if executives remain for three years.

“We want to keep people on the job, with a vested interest in the company,” Feinberg said.

He also reassured committee members that he doesn’t want any more authority than he already has—not a very czar-like attitude.

“The federal government should not enter the business of micromanaging compensation practices beyond these seven companies by expanding my jurisdiction or broadening my discretionary authority,” Feinberg testified.

When asked about that, he replied, “This is an exception. These seven companies are owned by the taxpayers.”

Plus, he added, these seven companies are “enough work for me.”

He declined to weigh in on the Federal Reserve’s plan to review executive compensation at the banks it regulates. That’s “not on my watch,” he said, adding that questions about that should be directed toward the Fed.

Feinberg’s work got good reviews from committee chairman Edolphus Towns, a Democrat from New York.

“No doubt there is howling in the executive suites, but I don’t think the taxpayers are going to be shedding any tears over this,” Towns said of the pay cuts ordered by Feinberg.

Republicans on the committee were more upset by the creation of TARP and the law that created Feinberg’s position than by Feinberg himself.

“We continue to travel down the road to crony capitalism by relying on unaccountable czars to micromanage salaries at firms we should have never protected from failure in the first place,” said Rep. Dan Issa of California, the committee’s ranking Republican.

“You really don’t answer to anybody,” Representative Dan Burton of Indiana, a former chairman of the committee, told Feinberg.

Giving one person that much power is “a little scary,” said Representative Mark Souder.

Feinberg’s answer to these complaints was simple: He’s only doing what Congress and Treasury Department regulations asked him to do.

He hopes his approach to executive compensation will serve “as a useful model to guide others in the private marketplace.”

But when asked by Towns if Wall Street would reform its compensation practices without government involvement, Feinberg replied, “It’s a murky crystal ball.”

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Kent Hoover is the Washington bureau chief for bizjournals.