Panel Unfortunately Attacks Feinberg Wall St. Pay Program

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“Pay Czar” Kenneth Feinberg failed to reign-in Wall Street pay practices, according to a Congressional Oversight Panel  report entitled “Executive Compensation Restrictions in the Troubled Asset Relief Program.” The panel did not mince words declaring: “The Special Master has fallen short in his far broader goal of permanently changing Wall Street’s pay practices.”

It was Feinberg’s job to critique and set the compensation packages for senior management at AIG (NYSE: AIG), Bank of America (NYSE: BAC), Chrysler, Chrysler Financial, Citigroup (NYSE: C), General Motors (NYSE: C), and GMAC/Ally Financial. The panel ignored the fact, perhaps correctly, that the government made a significant profit on several of the “investments” made by the TARP. But, the scope of the new report was focused on Feinberg’s actions and not the government’s returns.

“Because the Special Master released few details of his deliberations to the public, aspects of his decisions are essentially a `black box,’ and it would be impossible for a corporate compensation expert to duplicate his work”, The Congressional Oversight Panel wrote.

Feinberg, though, was not hired to create a guide for executive search firms or the compensation committees at  publicly traded financial firms. He had a very limited amount of time to review the past pay practices at firms which had received large bailout dollars and to create new compensation based on his findings. Many of his decisions were unique to the firms he examined because each was a special case. Some of the boards and managements at the corporations he looked at pushed back. Feinberg apparently made minor compromises with some of them to finish his work. He might have taken months longer and he might have produced very detailed reports on his methodology. That would have changed nothing.

The panel also says that Feinberg used a “one size fits all” approach. He did to some extent.  Senior managers at the firms in question  had their pay cut to the bone. Executives who had become rich in the past as their companies took on substantial risk had their pay lowered considerably. Many were forced to take a portion of their pay packages in stock. There is reason to think that managers whose future income will come from the value that they create for shareholders is reasonable.

Feinberg’s charge was not unlike that of the Fed and Treasury during the credit crisis. Decisions were made based on the best available data. Some of those decisions were flawed. Others turned out to be incorrect. The government’s jobs was to salvage what it could. Feinberg was asked to, in a limited about of time, assess what managers at rescued firms should be paid. Most received very little because they did little to prevent the crisis, and may have done a great deal to cause it. After Feinberg’s review no one could say that any of the executives in question were substantially overpaid if they were overpaid at all.

Douglas A. McIntyre