Bailed-out banks act before pay czar announcement

WASHINGTON — Several firms that received large taxpayer bailouts have adjusted executive compensation to trim cash payouts before the Obama administration’s pay czar issues new rules. Some fear those rules will go too far, preventing them from attracting the talent they need to remain competitive.

Company officials and lobbyists say Bank of America Corp., Citigroup Inc., GMAC Financial Services Inc. and others are reworking their pay plans to ensure compensation reflects executive performance. They are giving executives more of their compensation in stock and stock options, and spreading pay over a longer period. And they are adopting plans to recapture some pay when bets go bad.

Kenneth Feinberg, the Treasury Department’s special master for executive compensation, is expected by next week to announce compensation guidelines for the top 75 earners at the seven firms that received the most taxpayer money. His rules are expected to include some of the same measures companies already have adopted.

The companies acted without government guidance after watching lavish pay packages encourage excessive risk-taking, and after bonus payments sparked public and congressional outrage.

“The threat of failure and the ghosts of the companies that failed are incentive enough,” said Scott Talbott, a lobbyist with the Financial Services Roundtable. Talbott’s group represents several of the firms Feinberg is overseeing, including Bank of America, Citigroup and GMAC.

Some analysts and industry officials fear Feinberg’s limits will reflect political outrage rather than focus on reining in risk.

Compensation consultant Mark Borges, a principal with Compensia Inc., said the information could give other banks not subject to the rules “a roadmap” for luring away top performers. That could threaten their ability to “pull themselves out of their current dilemma,” he added.

Feinberg did not respond to requests for comment. But a Treasury spokesman said Feinberg’s work will help ensure that companies strike the right balance around their need to compensate employees competitively and protect taxpayer dollars.

“Obviously, we all have a shared interest in ensuring that those companies can return to profitability as soon as possible so that taxpayers can recoup their investment,” Treasury spokesman Andrew Williams said in a statement.

Feinberg also is reviewing pay practices at American International Group Inc., General Motors, Chrysler and Chrysler Financial.

The changes are not limited to those on Feinberg’s list. JPMorgan Chase & Co. and Goldman Sachs Group Inc. also are compensating senior employees with more stock and less cash, according to an industry official who spoke on condition of anonymity because he is not authorized to speak for the companies.

“Once one institution defects and does the right thing, it creates enormous pressure in terms of industry best practices for everyone else to adjust,” the official said.

Citigroup has restructured pay packages to base more of them on slow-vesting stock options and stock grants based on employees’ performance, company filings show. These changes apply to a large number of sales people, traders and others — not just to the 75 whose pay packages Feinberg is overseeing.

General Motors “made a number of adjustments” to executive compensation late last year, including suspending all bonuses, said spokesman Tom Wilkinson. Any outstanding restricted stock or stock option awards would have been wiped out in bankruptcy, he added.

Chrysler Financial spokeswoman Amber Gowan said the company’s pay already is performance-based, and that “Chrysler Financial’s compensation levels are within the competitive range of those employees in similar roles at similar entities within the financial services industry.”

GMAC spokeswoman Gina Proia said that firm has been working to align workers’ pay with long-term shareholder value. She referred to the company’s 2008 annual report, which said the top four employees voluntarily declined their bonuses and its bonus pool for the 25 highest-paid workers was reduced by 40 percent.

Referring to concerns that too-strict decisions by Feinberg could hamper banks as they strive to right themselves, she said GMAC is “trying to strike the balance of being able to retain key talent as we execute the turnaround.”

Bank of America spokesman Scott Silvestri said the company is still working with Feinberg, and believes its future compensation practices “will be very much in line with his guidance.”

Officials from GM, Chrysler, Chrysler Financial and AIG would not comment on their compensation plans.

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Bernard reported from New York. AP Economics Writer Martin Crutsinger in Washington and AP Business Writer Stevenson Jacobs in New York contributed to this report.