The Issues
In February 2009, the Obama administration proposed a $500,000 cap on executive pay following the 2008-2009 credit crisis.
Two weeks later, Congress approved the $787 billion stimulus bill. Buried in the bill was a provision written by Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.) that limited executive pay for companies receiving TARP funds. The language also imposed restrictions on executive bonuses. Under the rule, executives earning $1 million annually could receive up to $500,000 in bonus pay. The revision also increased the number of executives that would fall under the pay restriction. If a company received more than $500 million from TARP then the government could restrict the pay of its 25 most senior executives.
But causing a massive political uproar, the language was altered at the behest of Treasury officials in conference committee to honor back contracts for bonuses, according to Dodd. The altered language enabled the $165 million in AIG bonuses, leading to a political uproar.
In June 2009, Treasury officially implemented Dodd’s rules. In addition, the administration named Feinberg as its special master of compensation, where he has the right to reject executive pay plans at seven firms that received a “significant” amount of TARP funds.
The seven firms are AIG, Citigroup, Bank of America Corp., General Motors, GMAC, Chrysler and Chrysler Financial, which received nearly $250 billion in total from TARP. In August 2009, these seven firms submitted pay proposals for their top 25 employees.
2009 Executive Compensation
In October 2009, Feinberg announced his decision regarding the pay for the top 25 executives at seven companies. Feinberg concluded that the executives at AIG, Citigroup, Bank of America, GM, GMAC, Chrysler and Chrysler Financial will need to cut cash salaries by more than 90 percent for 2009. This means if an executive was making $1 million dollars a year in 2008, the executive would make about $100,000 in 2009.
Feinberg decided that executives can still receive stock as compensation, but they will have to wait two years to sell one-third of that stock. After three years, the executives can sell two-thirds of the stock and after four years they can sell the entire stock. The executives will get to keep the stock options even if they leave the company.
Executives in AIG's Financial Products unit, which was blamed for the company's implosion, will not receive any stock options and will not earn more than $200,000 a year. Chrysler Financial executives will also only receive a cash salary.
BofA's CEO Compensation
In October 2009, shortly before Feinberg issued his compensation rulings, he asked Bank of America's departing CEO Kenneth D. Lewis to return his 2009 salary. Lewis, who will step down from the bank at the end of 2009, will return $1 million. It was estimated at the end of 2008 that Lewis is owed $53 million in pension benefits and $11 million in deferred compensation from the bank, according to the executive-compensation research firm Equilar. Feinberg can't alter Lewis's retirement package.
Regarding rejecting his 2009 salary, Lewis believed that it was "not in the best interest of Bank of America to get into a dispute with the paymaster," said Bank of America spokesman Robert Stickler.
9/11 Compensation Fund
Days after the worst terror attack in U.S. history, Congress signed the Air Transportation Safety and System Stabilization Act that bailed out the airline industry. The bill also created the September 11th Victim Compensation Fund, which provided tax-free monetary compensation for all families who lost loved ones in the attack, as well as people injured trying to escape the rubble. Participation in the fund meant the families waived their right to sue the airlines and other entities.
The unprecedented law empowered one person to decide how much each victim would receive in compensation. Feinberg became the special master of the fund, working pro-bono for 33 months. He listened to nearly 1,500 testimonials from families whose loved ones couldn’t escape the collapsing steel.
Feinberg worked to persuade victims to take the money instead of going to court and suing the airlines. The compensation was required to reflect the victim's lifelong earnings potential, setting up a quandary: victims with a higher annual salary, such as bankers, would receive far more than someone like a busboy. Rewards varied from 250,000 to $4 million; in a few cases, families received more.
Many families disagreed with the amount awarded to them, and Feinberg became a sounding board for their grief and disappointment. "Your offer spits on my wife, spits on my son, on my father-in-law," said Steve Campbell during one of many meetings Feinberg held with victims. “I gotta watch my mother-in-law and father-in-law pop pills. My son, who now I gotta rely on family stories to tell him about his mother -- and you say $250,000? You ain't even close."
Feinberg convinced 97 percent of the eligible victims and families to participate in the compensation fund, doling out nearly $7 billion to more than 5,000 applicants, with an average compensation of nearly $2 million. “The 9/11 fund was an aberration -- an argument that I know rings very hollow with victims," said Feinberg when talking to Northwestern Law students in September 2005. “But do we want it to be a permanent part of American law? Should it be a statute that is triggered when there's a catastrophe -- a no-fault administrative remedy like the 9/11 fund? I say, `No.'"
