US Treasury Orders Bailout Recipients to Cut Executive Compensation by 90%

Strategic Insights -

The US Treasury, led by Kenneth Feinberg, has implemented a plan to reduce executive compensation for seven companies that received multi-billion dollar bailout packages during the financial crisis. The plan, announced on Thursday, will require senior executives at Bank of America, American International Group (AIG), Citigroup, General Motors, GMAC, Chrysler, and Chrysler Financial to have their basic salaries cut by 90%. The Treasury's decision comes after the US Congress amended the bailout law to require reduced compensation for executives at companies receiving government funding.

Key Takeaways:

  • The Treasury's plan will affect senior executives at seven companies that received bailout packages: Bank of America, American International Group (AIG), Citigroup, General Motors, GMAC, Chrysler, and Chrysler Financial.
  • Basic salaries for the top 25 executives at these companies will be cut by 90%, starting next month.
  • The reduced salary levels will form the backbone for decisions on salaries paid in 2010.
  • The Treasury's decision was prompted by Congress amending the bailout law to require reduced compensation for executives at companies receiving government funding.
  • Barack Obama, the US President, welcomed the Treasury's decision and called for legislation to grant shareholders a say on executive compensation.
  • The plan does not affect companies that have repaid their bailout money, such as Goldman Sachs and JPMorgan Chase.
  • The Federal Reserve has proposed monitoring pay schemes of US banks to limit risk-taking in return for bonus payments.

Statistics:

  • 90% reduction in basic salaries for top 25 executives at seven companies.
  • $16.7 billion set aside by Goldman Sachs for compensation this year, equal to about $500,000 per employee.
  • 28 biggest banks in the US will develop plans to ensure compensation does not spur undue risk-taking.
  • Thousands of banks will be covered under the Federal Reserve's proposal.

Sources:

  • Al Jazeera
  • Syndicate.info
  • Albawaba.com