TREASURY CONTINUES APPROVING EXCESSIVE PAY FOR TOP EXECS

This report is really eye-opening. Geithner ignored suggestions and recommendations every time. This report is a wee bit longer but, like the last report, I have posted the link to read the whole thing. Hopefully this won't be double spaced.

This month, SIGTARP released a report, “Treasury Continues Approving Excessive

Pay for the Top Executives at Bailed-Out Companies,” which reviewed the process

and decisions of Treasury’s Office of the Special Master for TARP Executive

Compensation (“OSM”) in setting pay packages at the three remaining TARP

exceptional assistance companies: American International Group, Inc. (“AIG”),

General Motors Corporation (“GM”), and GMAC, Inc., later rebranded as Ally

Financial Inc. (“Ally”).

While taxpayers struggle to overcome the recent financial crisis and look to the

Government to put a lid on compensation for executives of firms whose missteps

nearly crippled the U.S. financial system, Treasury continues to allow excessive

pay. AIG, GM, and Ally executive pay. AIG, GM, and Ally executives continue to rake in Treasury-approved multimillion-dollar pay packages that often exceed guidelines from OSM.ii

SIGTARP reported in January 2012 that the Special Master could not

effectively rein in excessive compensation at companies that received exceptional

assistance from TARP from 2009 through 2011: The Special Master was under

the constraint that his most important goal was to get the companies to repay and

exit TARP, a goal that gave the companies leverage.iii

Treasury’s formal response to SIGTARP’s report came from Acting Special Master Patricia Geoghegan, who stated that “OSM has succeeded in achieving its mission” by reducing pay for the Top 25 executives at these companies from the pay they received prior to TARP.

Treasury’s success should not be judged based on reductions in pay from a time

when these companies stood on their own without taxpayer assistance. If that is the

definition of success, the work of OSM was effectively over when Special Master

Kenneth R. Feinberg set the first pay packages in 2009, and there is no longer a

need for a Special Master. Rather, Treasury’s success should be based on whether

Treasury awards appropriate pay for executives while taxpayers continue to fund

these companies’ bailouts.

SIGTARP found that once again, in 2012, Treasury failed to rein in excessive

pay. In 2012, OSM approved pay packages of $3 million or more for 54% of the 69

Top 25 employees at AIG, GM, and Ally – 23% of these top executives (16 of 69)

received Treasury-approved pay packages of $5 million or more, and 30% (21 of 69)

received pay ranging from $3.0 million to $4.9 million. Treasury seemingly set a

floor, awarding 2012 total pay of at least $1 million.iv

 While taxpayers struggle to overcome the recent financial crisis and look to the

Government to put a lid on compensation for executives of firms whose missteps

nearly crippled the U.S. financial system, Treasury continues to allow excessive

pay. AIG, GM, and Ally executive pay. AIG, GM, and Ally executives continue to rake in Treasury-approved multimillion-dollar pay packages that often exceed guidelines from OSM.ii

 SIGTARP reported in January 2012 that the Special Master could not

effectively rein in excessive compensation at companies that received exceptional

assistance from TARP from 2009 through 2011: The Special Master was under

the constraint that his most important goal was to get the companies to repay and

exit TARP, a goal that gave the companies leverage.iii

Taxpayers deserve transparency on Treasury’s decisions to award multimillion dollar pay packages to executives at companies that had been stuck in TARP for four years. First, even though OSM set guidelines aimed at curbing excessive pay, SIGTARP previously warned that Treasury lacked robust criteria, policies, and procedures to ensure those guidelines are met. Treasury made no meaningful reform to its processes. Second, absent robust criteria, policies, and procedures to ensure its guidelines were met, OSM’s decisions were largely driven by the pay proposals of the same companies that historically, and again in 2012, proposed excessive pay. Third, with the companies exercising significant leverage, the Acting Special Master rolled back OSM’s application of guidelines aimed at curbing excessive pay.

 Despite SIGTARP’s previous warning that Treasury lacked robust criteria, policies, and procedures to ensure that Treasury’s guidelines to curb excessive pay are met, Treasury made no meaningful reform to its processes. Former Special Master Feinberg developed guidelines aimed at curbing excessive pay and reducing excessive risk taking. Treasury Secretary Timothy F. Geithner testified that executive compensation played a material role in causing the financial crisis because it encouraged excessive risk taking. Feinberg previously told SIGTARP that he limited cash salaries to $500,000 and shifted compensation more toward stock to reduce excessive risk and keep employees’ “skin in the game.” Feinberg also previously told SIGTARP that he targeted total compensation at the 50th percentile for similarly situated employees at similarly situated entities to keep the companies competitive. Feinberg testified before Congress that he used long-term restricted stock tied to performance metrics to correct problems with executive compensation practices at these companies.

 Although SIGTARP previously reported serious problems with OSM’s paysetting process and recommended fixes for those problems, Treasury failed to take any meaningful action in response. SIGTARP reported that OSM approved multimillion-dollar compensation packages, trying to shift these packages away from large cash salaries and toward stock, but that OSM did not have any criteria for applying its guidelines. SIGTARP reported that OSM awarded cash salaries greater than $500,000 without OSM substantiating good cause. The only action Treasury took in response to SIGTARP’s findings and recommendations was to document its use of market data on the 50th percentile and, in an eight-page spreadsheet, document limited explanations for cash salaries exceeding $500,000.

 Despite SIGTARP’s previous warnings, Treasury did not establish meaningful criteria for having good cause to award cash salaries greater than $500,000. In 2012, OSM did not independently analyze the basis for awarding cash salaries greater than $500,000. Without this analysis, OSM put itself in the position of relying heavily on justifications by the companies – companies that historically have pushed back on the Special Master’s limitations on compensation, in particular, on cash salaries. By not making substantive changes, Treasury is clinging to the status quo of awarding multimillion-dollar pay packages.

 OSM’s decisions were largely driven by the companies’ pay proposals, the same companies that historically, and again in 2012, proposed excessive pay, failing to appreciate the extraordinary situation they were in, with taxpayers funding and partially owning them. Many believe that AIG, Ally, and GM would not exist except for the Government assistance each so desperately requested. SIGTARP previously reported that, given OSM’s overriding goal to get the companies to repay TARP, the companies had significant leverage over OSM by proposing and negotiating for excessive pay, warning that if OSM did not provide competitive pay packages, top executives would leave and go elsewhere.

This was also the case for 2012 pay. For 2012, AIG negotiated for Treasury approved pay of approximately $108 million for 25 employees, GM negotiated for Treasury-approved pay of $64 million for 23 employees, and Ally negotiated for Treasury-approved pay of approximately $78 million for 21 employees. By proposing and negotiating for excessive 2012 pay, these executives continue to lack an appreciation for their extraordinary situations and fail to view themselves through the lenses of companies substantially owned by the Government. Other company actions or statements in 2012 shed light on the companies’ lack of appreciation for their extraordinary situation. AIG CEO Robert Benmosche, who has raked in the most compensation of any employee under OSM – $42 million in four years, with a cash salary exceeding by 200% the median salary of his peers – was quoted in New York Magazine as stating that neither Treasury nor the Federal Reserve Board has thanked him for repaying AIG’s rescue package. GM CEO Dan Akerson asked Treasury Secretary Geithner to relieve GM from OSM’s pay restrictions, a move Akerson said would ultimately benefit taxpayers, and issued a proxy statement complaining about the pay restrictions. Ally executives sought pay raises for the president of its subsidiary, Residential Capital, LLC (“ResCap”), despite the fact that ResCap filed bankruptcy in 2012 and sought extra pay for ResCap employees from the bankruptcy court.

ii OSM’s primary responsibility is to set pay packages for the Top 25 employees at companies whose amount and nature of their TARP bailout were labeled “exceptional.”  At the end of 2012, only three companies receiving exceptional assistance under TARP remained:  AIG, GM, and Ally.

iii SIGTARP previously reported that for 2009 through 2011, the Special Master approved multimillion-dollar compensation packages for Top 25 employees and approved pay packages worth $5 million or more over the 2009 to 2011 period for 49 individuals of 7 companies.

iv Only one employee received Treasury-approved pay under $1 million. Treasury awarded this AIG employee a guaranteed cash salary of $700,000.

 http://www.sigtarp.gov/Quarterly%20Reports/January_30_2013_Report_to_Congress.pdf

For all the quarterly reports, go here:

http://www.sigtarp.gov/pages/quarterly.aspx