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Why did cutting executive pay at bailed out companies take so long?
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When Kenneth Feinberg, the Obama Administration's pay czar for bailed out companies, announced that top executives at these companies will see their pay cut by as much as 90 percent, there is only one question we can ask:
What took so long?
Surely, taxpayer money must be spent very carefully when it is being used to keep a bunch of mismanaged companies deemed too big to fail, in this case American International Group (AIG), Bank of America, Citigroup, General Motors Co. (GM), Chrysler Group LLC, GMAC and Chrysler Financial, afloat. Certainly, top management, whose incompetence made the bailouts necessary, should be required to give up its multi-million dollar compensation packages as a necessary sacrifice for the good of both the company and the American people who are helping it to survive.
The pay cuts ordered by Feinberg should have occurred when former Treasury Secretary Henry Paulson created the Troubled Asset Relief Program (TARP) last year. But Paulson, a former Goldman Sachs CEO, preferred to look after his Wall Street buddies instead of the public interest, and instead gave away the bailout money with virtually no strings attached, thereby rewarding failure and leaving it to the Obama Administration to remedy the situation.
This lack of enforceable guidelines and oversight enabled AIG, which received $182 billion in federal bailout money after losing $62 billion in the fourth quarter of 2008, to pay $165 million in bonuses to 400 top executives. Now, executives in its financial products group, whose writing insurance contracts on shaky credit default swaps and other derivative transactions ran AIG into the ground, find their pay limited to $200,000 a year, a tidy sum for most of us but far less than they've become accustomed to in the Wall Street culture of selfishness.
Elsewhere, most top executives at bailed out companies now find their pay limited to $500,000 a year. This amounts to 25 percent pay cuts for the top 25 executives at GM, which received $50 billion in bailout money, and Chrysler, which received $14 billion; 85 percent at GMAC; and 56 percent at Chrysler Financial, which is headed for liquidation. The federal government now owns a 61 percent equity stake in GM, which it is eager to sell to recoup its bailout money when the company can get back on its feet.
Steven Rattner, former head of the Obama Administration's automotive task force, said he found "stunningly poor" management at GM, with the weakest financial operation task force members had ever seen at a major company. Led by then-CEO Rick Wagoner, who set a tone of "friendly arrogance," GM's top executives were insular, sequestering themselves from rank and file employees, and ready to blame the company's problems on some combination of the financial crisis, oil prices, the yen-dollar exchange rate, and the United Auto Workers.
Rattner also found Chrysler badly mismanaged, particularly during the period it was owned by Daimler, and unable to survive as a stand-alone company, resulting in an alliance with Fiat.
Wagoner, who presided over $78 billion in losses over four years, was fired at the task force's recommendation when he proved unable to devise a realistic turnaround plan. He isn't subject to Feinberg's pay cuts and has been rewarded handsomely for his failure, walking away with a $23 million golden parachute.
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