Pay for performance

What do Citigroup, Bank of America, General Motors, Chrysler, GMAC, Chrysler Financial and American International Group have in common?

Well, beside the fact that they benefited from hundreds of billions of dollars in government guarantees and other support, they collectively received about $250 billion in bailout funds from the Troubled Assets Relief Program.

After all the enormous financial figures that have been thrown around since the crisis, it can be difficult to put $250 billion in perspective.

Essentially, every American taxpayer gave these seven companies roughly $1,600. That’s the new MacBook you want, or about half of your in-state semester tuition here at IU. That’s 156.3 million spring break Caribbean Disney cruises total. 

With such a large government investment, it’s only fair that the government dictate to the would-be-failed companies the compensation packages of their top-paid employees.

Firstly, the U.S. government is now the single largest shareholder in each of the companies under the control of Kenneth R. Feinberg, the Treasury official in charge of overseeing pay practices for the seven largest bailout recipients.

Take, for instance, American International Group. The government purchased shares representing 85 percent of the equity in AIG for $40 billion ... 85 percent!

The government also provided a $60-billion loan and spent $50 billion soaking up AIG’s toxic assets.

Sounds like a failed company to us. Yet, on March 13, AIG dished out $165 million in bonuses, including some hefty rewards to members of the trading unit that caused its collapse.

Yes, much of the bonus money was returned, but only after public outrage, death threats and congressional hearings ensued.

These companies are clearly incapable of self-regulation when it comes to compensation.

Feinberg’s likely plan, as reported by The Washington Post, will cut cash salaries of the 25 highest-paid officials of the companies by about 90 percent compared to last year.

We think this is a good move and support the government decision to finally impose an executive pay scale that reflects company performance.

Moreover, the government has every right to impose stringent comp packages – it now owns an enormous percentage of these companies.

Whether or not you believe in government intervention, the fact of the matter is that when it comes to the largest recipients of TARP funding, the government has already intervened in an unprecedented way. The Obama administration and Feinberg are right to use their authority as the largest shareholders in order to institute a much needed change with regard to executive pay of poorly performing companies.