WASHINGTON - The Treasury Department on Thursday ordered seven companies that received billions of dollars in government bailouts to halve total compensation for their top executives. But the big reductions will not apply to pay earned before November.
Kenneth Feinberg, the Treasury official leading the pay review, told reporters that average salaries for the top 25 executives are being cut 90 percent starting next month.
The action will apply to the top executives at Bank of America Corp., American International Group Inc., Citigroup Inc., General Motors, GMAC, Chrysler and Chrysler Financial.
Meanwhile, the Federal Reserve unveiled a proposal Thursday that for the first time would police banks' pay policies to ensure they don't encourage employees to take reckless gambles like those that contributed to the financial crisis.
Unlike the Treasury plan, the Fed proposal would cover thousands of banks, including many that never received a bailout. But the central bank would not actually set compensation. Instead, the Fed would review - and could veto - pay policies that could cause too much risk-taking by executives, traders or loan officers.
The government did not want to make executives return compensation already received this year, but the reduced pay levels will be the base for making decisions on salary in 2010, Feinberg said.
The executives will still be subject to compensation limits as long as their companies are receiving support from the government's $700 billion bailout fund. Their total compensation was being cut in half, on average.
Cash salaries will be limited to $500,000 for more than 90 percent of affected employees. Personal expenses for such perks as company autos and corporate jets will be capped at $25,000 without approval from Feinberg's office for higher payments.
Feinberg got the job as pay czar earlier this year when Congress, responding to outrage about huge bonuses being paid to AIG, amended the bailout law to require that executive compensation at companies getting exceptional assistance be curbed.
"I am extremely sensitive to the public outrage," Feinberg told reporters, adding that his decisions were made without any input from the Obama administration.
Feinberg began reviewing the companies' compensation packages in August and described his discussions with them as "intense." Under the law, the companies' only avenue of appeal is to request that Feinberg review his own decisions.
Bank of America complained that the pay restrictions would hurt its ability to retain top employees.
"Competitors not subject to the pay restrictions already are exploiting this situation by identifying our top performers and using pay concerns to recruit them away," said Bank of America spokesman Scott Silvestri.
Smaller companies and those that have repaid the bailout money, including Goldman Sachs Group Inc. and JPMorgan Chase & Co., are not affected by the plan.