Report Slams Treasury for Excessive Compensation at AIG and GM
A report compiled by Christy Romero, special inspector general for the controversial Troubled Asset Relief Program, was released on Monday, unabashedly criticizing decisions made by the U.S. Department of Treasury. Specifically, Romero’s report targets the Office of the Special Master for TARP Executive Compensation, which was given jurisdiction over the compensation for 69 top executives at seven companies that received “exceptional assistance” during the financial crisis.
Heading into this report, it’s easy to perform a gut check about how much of a hot topic executive compensation has been in the past few years. The corporate elite have been demonized in proportion to their paychecks and stock options, pulling in millions while financial catastrophe wreaked havoc across the world. In the financial sector in particular, executive compensation packages were organized in such a way that incentivized unhealthy risks, and much of the crisis has been blamed on destructive incentive models.
With this in tow, Romero’s report packs a vehemence that’s probably only found in the halls of the SIGTARP offices and among prosecutors. SIGTARP, which was established to police the TARP program, conducted an investigation into Office of the Special Master for TARP Executive Compensation, and found that the OSM failed to abide by the Treasury’s own guidelines for compensation, and approved massive pay packages for executives…
In January of 2012, SIGTARP found that from 2009 to 2011, “the Special Master could not rein in excessive compensation at the seven companies that received exceptional TARP assistance because he was under the constraint that his most important goal was to get the companies to repay TARP.”
At the time, the person in charge was Kenneth Feinberg, who was worried that if compensations slipped, then top talent would leave the affected companies. Without the right talent and leadership, companies that received massive TARP bailouts like AIG (NYSE:AIG) and General Motors (NYSE:GM) would not be able to turn themselves around, pay back the Treasury, and remove themselves from government assistance.
“SIGTARP reported that despite reducing some pay, OSM approved pay packages worth $5 million or more for 49 individuals,” reads the report. This was far removed from guidelines that called for total compensation to target the “50th percentile for similarly situated employees at similarly situated entities and that cash salaries should not exceed $500,000, except for good cause.”
Having issued a report on its findings for 2009 through 2011, SIGTARP went ahead and investigated compensation in 2012, and found that the Treasury had once again “failed to reign in excessive pay.”
“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″ employees covered by the compensation guidelines. The report criticizes the Treasury for making no meaningful reform to its process. Instead, the OSM relied on the companies in question to request a compensation package, which it most often approved.
“The Office of the Special Master’s job is to look out for the interests of taxpayers, which it cannot do if it continues to rely to a great extent on the companies’ proposals and justifications without conducting its own independent analysis.”
At the end of the day, the report reveals what many observers felt all along — namely, that the government’s involvement in the financial crisis was messy, greatly improvised, and will take years to settle. The question of executive compensation and the best way to incentivize business leaders while minimizing risk remains unanswered. The Treasury put its microscope to the issue and, for better or worse, decided that the best way to keep things running was to keep compensation packages large.
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