From HumanEvents.com:

The White House Pay Czar late yesterday set pay levels of private citizens in the financial industry at companies receiving TARP funding.  In most instances, executive compensation packages would be cut in half while in one instance the pay cut is 90 percent — which will virtually guarantee a brain drain at companies where taxpayers are on the hook for billions of dollars.

The seven companies are AIG, Bank of America, Citigroup, General Motors Co., GMAC Inc., Chrysler Group LLC and Chrysler Financial.

Rep. Tom Price, chairman of the conservative Republican Study Committee, denounced the unprecedented government intrusion into private industry and the fundamental changes to our free market system.

“Where does this inane government intervention end?” Price asked. “This move, along with the original decision to bailout these companies, contradicts the fundamental principles that have provided us unparalleled prosperity. When the government can create powers out of thin air and set arbitrary pay standards for private citizens, we have told the world that politicians now drive the American economy, not people and markets.”

“This issue strikes at a fundamental question of the role of government,” Price continued.  “While history and principle have long proven that private markets are where prices are most efficiently set, this administration has decided that there is no question which bureaucrats cannot answer.”

“Executives who violate the trust of their shareholders and make reckless decisions should face the consequences of their actions,” Price said.  “Yet the unprecedented bailouts and interventions into private companies that we have witnessed over the last year have removed all consequences for putting short-term gain over long-term stability. Rather than perpetuating political control over the economy, we must restore the free market forces that keep companies honest.”

“This action today should concern every single American, as the administration moves ever further down a very slippery slope,” Price concluded.  “While it is bailed out firms today, it could be any industry that falls out of political favor next. Our focus should be on removing the claws of the federal government and taxpayer dollars from these private companies, not settling in for the long haul. We cannot restore the robust economic system we seek until we remember that markets, not government, are what hold our economy together.”

From GOPUSA.com:

Obama to slash bailout exec pay by 90 percent
Associated Press
October 22, 2009

WASHINGTON (AP) – The Obama administration will order companies that received huge government bailouts last year to slash the salaries of their top executives by an average of 90 percent and cut their total compensation in half, a person familiar with the decision said Wednesday.

The cuts apply to the 25 highest paid executives at the seven companies that received the most assistance, said the person, who spoke on condition of anonymity because the decision has not been announced. Smaller companies and those that have repaid the bailout money, including Goldman Sachs Group Inc. and JPMorgan Chase & Co., are not affected.

The Treasury is expected to announce the cuts within the next few days.

Kenneth Feinberg, the special master at Treasury appointed to handle compensation issues as part of the government’s $700 billion financial bailout package, is making the pay decisions.

The seven companies are Bank of America Corp., American International Group Inc., Citigroup Inc., General Motors, GMAC, Chrysler and Chrysler Financial.

It was unclear exactly how much the executives would be allowed to make, or how that would be determined.

However, at the financial products division of AIG, the giant insurance company which has received taxpayer assistance valued at more than $180 billion, no top executive will receive more than $200,000 in total compensation, the person familiar with Feinberg’s plan said.

The administration also will warn AIG that it must significantly reduce the $198 million in bonuses promised to employees in its financial services division, the arm of the company whose risky trades caused its downfall.

The pay restrictions for all seven companies will require any executive seeking more than $25,000 in special benefits – things such as country club memberships, private planes and company cars – to get permission for those perks from the government.

Until now, these companies were only required to provide guidelines for the use of such luxuries. The inspector general at Treasury who oversees the bailout program found a range of standards. GM, for instance, generally prohibits employees from flying in private jets for business travel. Bank of America, on the other hand, encourages senior management to use corporate aircraft “for safety and efficiency purposes.”

Feinberg’s decisions come days after administration officials voiced sharp criticism of plans by some firms, particularly those on Wall Street, to pay huge bonuses even as the country continues to struggle with rising unemployment and the effects of the recession.

Goldman Sachs, which has paid back its bailout money, has said it earmarked $16.7 billion for compensation so far this year, more than $500,000 per employee. Citigroup is paying $5.3 billion in bonuses to its employees and Bank of America $3.3 billion.

Elsewhere, Freddie Mac is giving its chief financial officer compensation worth as much as $5.5 million, including a $2 million signing bonus. The government-controlled mortgage finance company doesn’t have to follow the executive compensation rules because it is being paid outside the Troubled Asset Relief Program, or TARP.

Congress passed legislation in February requiring Treasury to oversee pay at companies that took bailout money. Treasury created the pay czar’s office in June as one means of implementing that law.

Treasury’s rules requires the special master to review pay for the 25 top earners at companies that received “exceptional assistance,” examining overall pay structures and recapturing payouts that go against taxpayers’ interests.

Feinberg on Tuesday told a Washington audience that negotiating with the companies was a study in contradictions.

“Perfect metrics, competitive pay, no excessive risk, loyalty to the company,” he said. “What I have to do under the law – and everyone’s waiting” is to create compensation packages “reflecting those often conflicting principals.”

Feinberg has until Oct. 30 to design pay packages for top earners.

Tom Wilkinson, a GM spokesman, said Wednesday that the auto company was “currently in discussions with Mr. Feinberg’s office regarding executive compensation. We will have further information once those discussions have concluded.”

Gina Proia, a spokeswoman for GMAC, said the finance company has “been working on a proposal that aims at embodying the principles set forth for compensation along with balancing the need to retain critical talent necessary to execute our turnaround. Until we receive notification about that plan, we have no further comment.”

Chrysler Group issued a similar statement.

Representatives for Chrysler Financial, Citigroup and AIG declined to comment. A spokesmen for Bank of America did not return calls for comment Wednesday evening.

But company officials and lobbyists earlier this month said Bank of America, Citigroup, GMAC Financial Services and others were reworking their pay plans to ensure compensation reflects executive performance. They’re giving executives more of their compensation in stock and stock options, and spreading pay over a longer period. They are also adopting plans to recapture some pay when bets go bad.

The changes are not limited to those on Feinberg’s list. JPMorgan Chase & Co. and Goldman Sachs Group Inc. also are compensating senior employees with more stock and less cash.

Rep. Jeb Hensarling of Texas, a Republican member of the congressional panel that oversees the $700 billion fund, said the only way taxpayers end up “subsidizing offensive executive salaries is when the government bails out the executives and the companies they run in the first place.”

Hensarling called again Wednesday for terminating the bailout program at the end of this year.

From The Heritage Foundation:

At Marginal Revolution George Mason University economics professor Alex Tabarrok comments on Obama administration’s pay czar Kenneth Feinberg’s decision to cut bailed out firm executive pay by an average of about 90 percent from last year:

There is no way this will work as advertised. If the administration actually follows through, most of these executives will quit and get higher paying jobs elsewhere. Executives not directly affected by the pay cuts will also quit when they see their prospects for future salary gains have been cut. Chaos will be created at these firms as top people leave in droves. Will the administration then order people back to work?

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