Wednesday, December 9, 2009

In Feinberg we trust: will he blink in light of AIG threats?

It has been well-reported by various media that TARP Pay Czar Kenneth Feinberg may blink in light of five AIG employees threatening to walk if their pay is limited to $500,000 per year.

Let me say first that until Feinberg actually releases his rulings, and provides rationale for this alleged accommodation, I have hope in his discretion. He is, afterall, the person closest to the issues involved in the pay caps placed on companies who have not yet repaid their TARP funding. And truthfully, the law does allow Feinberg to award compensation above the $500,000 cap for “good cause.” Feinberg has already broken this cap in three instances for AIG employees: CEO Benmosche, CFO Herzog, and Property Casualty Chief Moor. Those rulings were released earlier this Fall when Feinberg considered the compensation of the top twenty-five highest paid employees at AIG. The allegation of accomodation now, however, focuses on Feinberg’s current consideration of the compensation for the next seventy-five highest paid employees at AIG.

The alleged accommodation strikes me as dangerous precedent for Feinberg’s office. Afterall, if one company is allowed to pay above the compensation limits in light of a threat to walk, then why not a second or third? What’s really intriguing to me is how well Feinberg has to date maintained cooperation from these companies regarding pay restrictions; a matter both highly sensitive and normally internal. One concern is that this alleged accommodation is the first kink in that cooperation, and consequently in Feinberg’s authority and the effectiveness of his office.

People “close to Feinberg” indicate the accommodation has nothing to do with the threat of employees walking. Other sources indicate two of the five AIG employees have since rescinded their threat to walk.

But the initial stonewall by the AIG employees does strike me as short-sighted. In light of the current economic turmoil and the real struggle that many middle and lower class Americans face, I am curious at what is the real drama behind accepting half a million dollars for a year’s work. Surely some compromise could have been reached regarding form of compensation, and perhaps deferred compensation. Presumably, these circumstances would exist only for a year or three? Though perhaps AIG does not have the ability to repay the federal funds in the next several years? AIG received a total of $183 billion dollars in federal funds. I don’t know, but again am very interested in Feinberg's rulings themselves (hopefully released later this month).

Outside of the scope of this post, but it would be interesting to compare and contrast the work responsibilities and value added of the five AIG employees threatening to walk, to that of Citi’s Andrew Hall. Recall, earlier this summer Citigroup actually spun-off part of its organization to accommodate an employee who had earned $100 million in bonus awards for the work performed. The move also accommodated the federal government and the TARP pay restrictions. Which factor in the TARP discussion has so-changed that we have gone from Citigroup’s handling of the matter, to AIG’s?

The story is everywhere, including Bloomberg and the WSJ. This blawg’s writing about Kenneth Feinberg is located here.

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