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'Pay czar' calls out banks for excessive pay

Updated with bank names.

The government's pay czar announced Friday that 17 companies benefiting from federal bailout money handed out $1.6 billion in excess executive pay at the height of the financial crisis. The firms include Citigroup, Goldman Sachs and Bank of America.

Kenneth Feinberg, the Obama administration's special master for compensation, examined executives earning more than $500,000 at the 419 firms that received taxpayer assistance. Out of the 17 companies he found were egregious in their compensation, 11 have paid back the assistance received from taxpayers.

Citigroup was the worst offender, handing out $400 million in excess pay, according to a government source close to the investigation.

Other offending firms include JPMorgan Chase, Morgan Stanley, AIG and McLean-based Capital One, Boston Private Financial Holdings, CIT, M&T Bank, SunTrust, Bank of New York Mellon, Regions Financial, PNC Financial and U.S. Bancorp.

Feinberg emphasized he is not asking for the firms to pay the money back.

"This is an eleventh hour, armchair 'look back' quarterbacking," said Feinberg on Friday, adding the firms did not do anything illegal.

Feinberg, however, recommends that companies adopt an emergency provision that would allow them to break pay contracts if another financial crisis occurred. If the company's board determined that the firm was in a crisis, the compensation committee would be allowed to revisit pay levels. During the recent banking meltdown, many companies protested that they were legally obligated to mete out their payment contracts with executives.

The special master has the authority to review pay but can only force reimbursements from the banks if he finds they acted "contrary to the public interest." Feinberg said their actions fell short of that threshold because the payouts were allowed at the time, although Treasury Department rules later imposed tougher limits on pay for bailout recipients.

The excessive pay was reported at only a small group of the 419 firms examined. The report found that out of the entire pool of firms receiving taxpayer funds, 240 did not hand out more than $500,000 to any of its top 25 executives. A subset of 116 firms handed out too much money to five or fewer executives.

Many of the country's biggest banks have repaid their bailout funds, including Goldman Sachs, J.P. Morgan, Bank of America, and Wells Fargo. Companies that are still on the hook include AIG, SunTrust and CIT.

As his work as pay czar winds down, Feinberg will soon focus all his attention on overseeing the BP oil spill compensation fund.

For a review of what the bailed out banks paid their CEOs, check out this post over at the Market Cop blog by my colleague Zach Goldfarb.

By Jia Lynn Yang  |  July 23, 2010; 11:46 AM ET
Categories:  Executive compensation  
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