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‘Pay Czar’ Kenneth Feinberg Testifies before House Committee on Oversight and Government Reform
Last Updated: Thu, 10/29/2009 - 5:52pm
On Wednesday, October 28, the Special Master for Troubled Asset Relief Program (TARP) Executive Compensation (also known as the ‘Pay Czar’) Kenneth Feinberg testified before the House Committee on Oversight and Government Reform. The Committee, chaired by Edolphus Towns (D-NY) probed Feinberg on his efforts to regulate the often egregious bonuses received by executives of bailed out companies. Feinberg’s testimony came six days after the release of his first determinations on the compensation packages for the top 25 employees at the seven companies that took the most taxpayer money through the TARP (AIG, Citigroup, Bank of America, Chrysler, GM, GMAC and Chrysler Financial).
Feinberg is making a great deal of news these days. On October 9 the Associated Press reported that the Pay Czar pressured Citigroup to sell its valuable energy trading unit, Phibro, to oil company Occidental Petroleum at a bottom of the barrel price in order to avoid a confrontation over the potential bonus for Phibro’s top trader Andrew Hall. The Following week, Reuters reported on General Motors’ difficulty in finding a new CFO, citing Feinberg’s limitations on executive compensation as the main hurdle in GM’s search. Though the public are rightly outraged over the outrageous bonuses given to executives at bailed out banks, recent events should stand out as a red flag regarding the Obama Administration’s expanding control over (what used to be) the private sector.
Much of Wednesday’s House Committee hearing was spent examining the specifics of Feinberg’s compensation determinations. However, some members of the Committee used the opportunity to delve into broader aspects and implications of the mere existence of a ‘Pay Czar.’ Ranking Member Congressman Darrel Issa (R-CA) emphasized that Feinberg’s primary obligation should be focused on returning as much bailout money to the American people as possible. Issa stated that for there to be any hope of taxpayers seeing a return, Feinberg must take into consideration the retention and attraction of talent necessary to return the companies to profitability -- the Congressman cited recent reports that top executives are fleeing the bailed out companies.
Congressman Dan Burton (R-IN) reiterated Congressman Issa’s concerns over the talent leaving bailed out companies, musing why anyone would take a 90% pay cut instead of leaving for a job not under the Pay Czar’s domain. Burton labeled Feinberg’s program as actually encouraging top talent to flee. This issue is important, especially considering that Feinberg never analyzed which executives and divisions of AIG and the other companies were actually successful, as opposed to contributing to the financial crisis. Feinberg’s determination lacks any proper analysis of the specific failings of these companies (for which each case is unique), and therefore his is seen by many as excessively broad and largely arbitrary.
The recent controversies involving Administration czars reflect an alarming policy of government involvement and command over significant private business decisions. Ironically, these incursions into private business are not even accomplishing the policy goals that purportedly underlie the actions. Special Inspector General for TARP Neil Barofsky, testified to Congress two weeks ago that the Treasury failed to rein in the compensation paid to many executives who were actually involved in the financial crisis, and who were bailed out with billions of taxpayer dollars. In his report Barofsky writes,
[The] Treasury invested $40 billion of taxpayer funds in AIG, designed AIG’s contractual executive compensation restrictions, and helped manage the Government’s majority stake in AIG for several months, all without having any detailed information about the scope of AIG’s very substantial, and very controversial, executive compensation obligations. Treasury’s failure to discover the scope and scale of AIG’s executive compensation obligations, in particular at AIGFP, potentially resulted in a missed opportunity to avoid the explosively controversial events and created considerable public and Congressional concern over the retention payments.
Several congressmen, including Brian Bilbray (R-CA) and Jim Jordon (R-OH) expressed grave concerns over the potential for further government interference in the private sector. In response to this concern, Feinberg declared that he could not tell Congress how to regulate, but emphasized that he is against an extension of his authority to cover the compensation packages of additional companies
However, recent reports from the Federal Reserve seem to validate Congressmen Bilbray and Jordan’s concerns. On October 22, the Fed announced a proposal that it be authorized to conduct two “supervisory initiatives” in order to assure that “compensation policies of banking organizations do not undermine the safety and soundness of their organizations.” Specifically, the Fed wants the authority to analyze the compensation policies and practices at “28 large, complex banking organizations” as well as compensation packages at “regional community, and other banking organizations not classified as large and complex” in order to ensure that they are consistent with the Fed’s own “risk-appropriate incentive compensation” principles.
The irony in all of this is that the government has already attacked “excessive employee remuneration,” and in the process likely increased the very financial risk-taking it is now seeking to regulate. In 1993, the Budget Reconciliation Act barred corporations from using salary payments over $1 million as normal business expense tax deductions. Instead, stock options were the government’s preferred form of compensation, because these were theoretically performance based. Yale law professor Jonathan Macey reports that the 1993 revision in the tax code “led to the very compensation packages that incentivized risk taking” – one of the favorite areas to assign blame for 2008’s financial crisis. Sixteen years later, the Administration and the Fed’s unanimous solution to the problem of excessive risk taking is the return to regulation of compensation.
Though there are legitimate concerns over the structure of executive compensation policies, these issues need to be debated in a public forum instead of simply regulated by a Pay Czar. While the Administration failed to use the salary controls it gained through TARP on many of those involved in the financial crisis, it is now using the expanded authority to prevent bailed out companies from attracting new talent – hurting the chances that the taxpayers will ever get paid back for the billions given away. The purported wrongdoers have escaped oversight and the target companies are being hurt in their attempts to return to financial soundness. Such is the unfortunate irony of the Obama Administration’s control over executive compensation.
Click here
http://www.judicialwatch.org/foiabl...ouse-committee-oversight-and-government-refor
‘Pay Czar’ Kenneth Feinberg Testifies before House Committee on Oversight and Government Reform
Last Updated: Thu, 10/29/2009 - 5:52pm
On Wednesday, October 28, the Special Master for Troubled Asset Relief Program (TARP) Executive Compensation (also known as the ‘Pay Czar’) Kenneth Feinberg testified before the House Committee on Oversight and Government Reform. The Committee, chaired by Edolphus Towns (D-NY) probed Feinberg on his efforts to regulate the often egregious bonuses received by executives of bailed out companies. Feinberg’s testimony came six days after the release of his first determinations on the compensation packages for the top 25 employees at the seven companies that took the most taxpayer money through the TARP (AIG, Citigroup, Bank of America, Chrysler, GM, GMAC and Chrysler Financial).
Feinberg is making a great deal of news these days. On October 9 the Associated Press reported that the Pay Czar pressured Citigroup to sell its valuable energy trading unit, Phibro, to oil company Occidental Petroleum at a bottom of the barrel price in order to avoid a confrontation over the potential bonus for Phibro’s top trader Andrew Hall. The Following week, Reuters reported on General Motors’ difficulty in finding a new CFO, citing Feinberg’s limitations on executive compensation as the main hurdle in GM’s search. Though the public are rightly outraged over the outrageous bonuses given to executives at bailed out banks, recent events should stand out as a red flag regarding the Obama Administration’s expanding control over (what used to be) the private sector.
Much of Wednesday’s House Committee hearing was spent examining the specifics of Feinberg’s compensation determinations. However, some members of the Committee used the opportunity to delve into broader aspects and implications of the mere existence of a ‘Pay Czar.’ Ranking Member Congressman Darrel Issa (R-CA) emphasized that Feinberg’s primary obligation should be focused on returning as much bailout money to the American people as possible. Issa stated that for there to be any hope of taxpayers seeing a return, Feinberg must take into consideration the retention and attraction of talent necessary to return the companies to profitability -- the Congressman cited recent reports that top executives are fleeing the bailed out companies.
Congressman Dan Burton (R-IN) reiterated Congressman Issa’s concerns over the talent leaving bailed out companies, musing why anyone would take a 90% pay cut instead of leaving for a job not under the Pay Czar’s domain. Burton labeled Feinberg’s program as actually encouraging top talent to flee. This issue is important, especially considering that Feinberg never analyzed which executives and divisions of AIG and the other companies were actually successful, as opposed to contributing to the financial crisis. Feinberg’s determination lacks any proper analysis of the specific failings of these companies (for which each case is unique), and therefore his is seen by many as excessively broad and largely arbitrary.
The recent controversies involving Administration czars reflect an alarming policy of government involvement and command over significant private business decisions. Ironically, these incursions into private business are not even accomplishing the policy goals that purportedly underlie the actions. Special Inspector General for TARP Neil Barofsky, testified to Congress two weeks ago that the Treasury failed to rein in the compensation paid to many executives who were actually involved in the financial crisis, and who were bailed out with billions of taxpayer dollars. In his report Barofsky writes,
[The] Treasury invested $40 billion of taxpayer funds in AIG, designed AIG’s contractual executive compensation restrictions, and helped manage the Government’s majority stake in AIG for several months, all without having any detailed information about the scope of AIG’s very substantial, and very controversial, executive compensation obligations. Treasury’s failure to discover the scope and scale of AIG’s executive compensation obligations, in particular at AIGFP, potentially resulted in a missed opportunity to avoid the explosively controversial events and created considerable public and Congressional concern over the retention payments.
Several congressmen, including Brian Bilbray (R-CA) and Jim Jordon (R-OH) expressed grave concerns over the potential for further government interference in the private sector. In response to this concern, Feinberg declared that he could not tell Congress how to regulate, but emphasized that he is against an extension of his authority to cover the compensation packages of additional companies
However, recent reports from the Federal Reserve seem to validate Congressmen Bilbray and Jordan’s concerns. On October 22, the Fed announced a proposal that it be authorized to conduct two “supervisory initiatives” in order to assure that “compensation policies of banking organizations do not undermine the safety and soundness of their organizations.” Specifically, the Fed wants the authority to analyze the compensation policies and practices at “28 large, complex banking organizations” as well as compensation packages at “regional community, and other banking organizations not classified as large and complex” in order to ensure that they are consistent with the Fed’s own “risk-appropriate incentive compensation” principles.
The irony in all of this is that the government has already attacked “excessive employee remuneration,” and in the process likely increased the very financial risk-taking it is now seeking to regulate. In 1993, the Budget Reconciliation Act barred corporations from using salary payments over $1 million as normal business expense tax deductions. Instead, stock options were the government’s preferred form of compensation, because these were theoretically performance based. Yale law professor Jonathan Macey reports that the 1993 revision in the tax code “led to the very compensation packages that incentivized risk taking” – one of the favorite areas to assign blame for 2008’s financial crisis. Sixteen years later, the Administration and the Fed’s unanimous solution to the problem of excessive risk taking is the return to regulation of compensation.
Though there are legitimate concerns over the structure of executive compensation policies, these issues need to be debated in a public forum instead of simply regulated by a Pay Czar. While the Administration failed to use the salary controls it gained through TARP on many of those involved in the financial crisis, it is now using the expanded authority to prevent bailed out companies from attracting new talent – hurting the chances that the taxpayers will ever get paid back for the billions given away. The purported wrongdoers have escaped oversight and the target companies are being hurt in their attempts to return to financial soundness. Such is the unfortunate irony of the Obama Administration’s control over executive compensation.
Click here
http://www.judicialwatch.org/foiabl...ouse-committee-oversight-and-government-refor