Pay czar hopes Wall Street takes cuts ‘to heart’

The Obama administration’s “pay czar” told a congressional panel Wednesday that his authority shouldn’t be expanded beyond the seven biggest corporate recipients of government aid and that the government should get out of the business of regulating Wall Street salaries in the long run.

“These seven companies are owned by the taxpayer, and the taxpayers as creditors are asking these companies to rein in compensation and … maximize the likelihood first and foremost that the taxpayers will get their money back,” Kenneth Feinberg told a House Oversight and Government Reform Committee hearing.

But, he added, “I do not believe, as the administration has stated elsewhere, that we should be micromanaging other companies in the private sector.”

Mr. Feinberg, who was appointed paymaster by President Obama, said he hopes that his recommendations to curb executive pay packets at the seven largest beneficiaries of the taxpayer bailout will encourage the rest of Wall Street to follow suit voluntarily.

“Hopefully with my recommendations, other companies on Wall Street and elsewhere will take to heart what I have suggested,” he said. “And hopefully the model that is created in my report will trickle and expand beyond these seven companies.”

Mr. Feinberg was appearing before the committee to discuss an order he issued last week to restrict pay at firms that took the most money from the $700 billion Troubled Asset Relief Program (TARP), set up by the Bush administration last year to avoid a meltdown of the U.S. financial system.

The cash salary of the top 25 executives at American International Group, Citigroup, Bank of America, General Motors, Chrysler and the financing arms of the two automakers will be slashed by 90 percent on average, and their stock compensation will be restricted so they cannot cash it in quickly.

Overall compensation for the affected executives will average about half of what they earned last year.

Mr. Feinberg also said he rejected compensation plans by six of the seven companies because of “flaws” in their proposal. Only Chrysler Financial’s plan was accepted by Mr. Feinberg.

Oversight Committee Chairman Rep. Edolphus Towns, New York Democrat, said Wall Street must do a better job linking compensation to performance.

“Without this crucial link, we will continue to have perverse incentives for bank executives to take unjustified risks with taxpayer money,” Mr. Towns said. “This is unwise and unacceptable.”

Mr. Feinberg said he was “troubled” that some Capitol Hill Democrats want to set pay limits on Wall Street beyond the seven companies.

Republicans also warned that excessive government intervention could handcuff Wall Street and hurt the overall economy.

“The successes of the past in America should not, in fact, be wiped away because of the sins of a few on Wall Street who perhaps, realizing that bulls and bears were both making money, decided to become pigs,” said Rep. Darrell Issa of California, the committee’s top Republican.

Mr. Feinberg must now deal with the compensation structures for the next 75 most highly paid executives at the seven companies and then determine 2010 compensation for senior executives.