Treasury Explains Why Only 7 Firms Must Answer To Compensation Czar
June 11 2009 - 12:42PM
Dow Jones News
The counsel to the U.S. Treasury Secretary explained to
lawmakers Thursday why only seven big financial firms that received
bailouts will be subject to heightened oversight of their
compensation by a new "special master" of compensation.
Responding to questions during a House Financial Services
Committee hearing, Gene Sperling told lawmakers that the companies
- American International Group Inc. (AIG), Citigroup Inc. (C), Bank
of America Corp. (BAC), General Motors Corp. (GMGMQ)., GMAC LLC,
Chrysler and Chrysler Financial - will be subject to additional
scrutiny because they received extraordinary assistance not offered
to other firms. Under new interim rules announced by Treasury
Wednesday, those companies will have their executive compensation
reviewed by Kenneth Feinberg, who was appointed to oversee such
matters at firms that received special assistance under the
Troubled Asset Relief Program. Feinberg will have the ability to
reject salaries if they are deemed to be excessive.
Other firms that received TARP funds will be subject to some new
rules restricting compensation as well, but they will not face any
potential caps on salaries the same way these seven firms will.
"Our feeling is some of the things we've done ... are set up to
be generally accessible to the financial industry at large and ...
we think there is positive public purpose in them participating,"
said Sperling, referring to the capital purchase program that
allowed the Treasury to take an equity stake in banks. "Where a
company comes to the U.S. government and the U.S. taxpayer and
requires exceptional assistance that is not being offered to their
peers that is an exceptional case and that requires us at the
Treasury Department to have a stronger fiduciary duty to the
taxpayer," he added.
Thursday's hearing on compensation and executive risk-taking
came just one day after the Treasury unveiled a broad range of
principles on compensation and called for new laws to empower
federal regulators to pass rules allowing shareholders to have a
non-binding vote on compensation.
Thursday's hearing did not seek to hone in on compensation
practices at companies that received TARP funds, but to look ahead
at how compensation practices that encourage risk-taking could
potentially harm all public companies.
Still, lawmakers took special interest in asking about the
Treasury's newly unveiled rules governing compensation restrictions
for TARP recipients.
One outspoken Democrat on the committee, Rep. Brad Sherman of
California, strongly questioned the Treasury's rationale for
forcing only seven companies to answer to the new special master on
compensation.
" I would say TARP is an extraordinary departure from free
enterprise and even those that got only one infusion ... should be
viewed as getting extraordinary help," he said.
-By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634;
sarah.lynch@dowjones.com