Thursday, August 13, 2009

Feinberg Update: DEADLINE TODAY for receipt of executive compensation proposals

Seven of the largest recipients of federal aid in the last calendar year - AIG, BofA, Citigroup, GM, GMAC, Chrysler, Chrysler Financial - are required to submit compensation proposals to Compensation Czar Feinberg by today. Some have already submitted their proposals. The proposals detail how the companies intend to pay their highest paid executives: specifically regarding the 25 highest earners, and formulaicly regarding the next 75 highest earners. Allen has written about Feinberg and his objectives here. I want to briefly write now on how this deadline will shake out and what steps are ahead.

Feinberg, and by proxy the Obama Administration, effectively has a veto power here. Feinberg is expected to negotiate with the companies over a period of 60 days, but he will either accept or reject the proposals at the end of that period. It is important to note that Feinberg cannot relieve the companies of performance under executory compensation contracts entered into prior to enactment of TARP. Those watching the progression of events expect, at most, Feinberg to push for pay that is in some way related to company performance, and equity compensation in the form of restricted stock grants.

Eye Candy Note: NYAG Cuomo detailed the cash flow of some of these seven in his July Report. Summarized here:
  • BofA received $ 75 billion in federal aid, earned $ 4 billion in 2008, and awarded $ 3.33 billion in cash and equity bonuses (for period 2008).
  • Citigroup received $ 65 billion in federal aid, loss $ 27.7 billion in 2008, and awarded $ 5.33 billion in cash and equity bonuses (for period 2008).

Of uber interest: folks are not sure if these compensation proposals will be made public, and if they will be, at what date. White House Press Secretary Robert Gibbs expressed uncertainty yesterday, suspecting that although Feinberg's decisions will be made public, the proposals may not be.

FYI: Feinberg's work as Compensation Czar is pro bono.

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