C-suite executives at too-big-to-fail companies that received federal bailout funds kept their excessively generous salaries and benefits when they were receiving aid from Washington, according to a new report issued by the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), which blamed both the companies and Treasury Department officials for the failed attempt at corporate austerity.
‘When Congress created the Troubled Asset Relief Program (TARP) in 2008, it included some limits on compensation for employees at companies that received TARP assistance,’ said the report. ‘After several major TARP recipients paid employees billions of dollars in bonuses for 2008, the president, the U.S. Department of the Treasury and Congress expressed frustration. The president announced the capping at $500,000 of annual salaries at companies that had received 'exceptional assistance' under TARP, with any further compensation to be paid in stock that could not be cashed in until the company paid back TARP. After the president's announcement, Congress passed legislation under which Treasury created the Office of the Special Master for TARP Executive Compensation (OSM).’
The OSM was put in charge of determining compensation schematics at four financial services institutions – American International Group Inc. (AIG), Ally Financial Inc.(formerly GMAC Inc.), Bank of America Corp. and Citigroup Inc. – plus the automotive industry titans Chrysler Financial Services Americas LLC,Â Chrysler Holding LLC and General Motors Corp.
However, SIGTARP's report concluded that Kenneth R. Feinberg, the first person appointed to run the OSM, was incapable of getting the executives at these companies to abandon their pre-recession behavior.
‘SIGTARP found that the [OSM] could not effectively rein in excessive compensation at the seven companies because he was under the constraint that his most important goal was to get the companies to repay TARP,’ according to the SIGTARP report. ‘Although generally he limited cash compensation and made some reductions in pay, the [OSM] still approved total compensation packages in the millions.’
SIGTARP credited the bailed-out companies with effectively twisting the OSM's arm to get their way.
‘The seven companies had significant leverage over OSM by proposing and negotiating for excessive pay packages based on historical pay, warning Feinberg that if he did not provide competitive pay packages, top officials would leave and go elsewhere,’ the report stated.
Furthermore, SIGTARP pointed out that ‘Treasury officials pressured [Feinberg] to let the companies pay executives enough to keep the companies competitive and on track to repay TARP funds.’
Ultimately, SIGTARP acknowledged that the OSM's efforts had zero impact on how the companies compensated their executives.
‘OSM's pay determinations are not likely to have a long-lasting impact at the seven TARP exceptional assistance companies or other companies,’ the report concluded. ‘OSM's decisions had little effect on Citigroup and Bank of America, which exited TARP, in part to escape OSM compensation restrictions. Once out of TARP, salaries and bonuses climbed.’
The full report is available on the SIGTARP website.