For companies bailed out by Washington, pay is shifting from cash to stock.
WSJ: The Obama administration’s pay czar is planning to clamp down on compensation at firms receiving large sums of government aid by cutting annual cash salaries for many of the top employees under his authority, according to people familiar with the matter.
Instead of awarding large cash salaries, Kenneth Feinberg is planning to shift a chunk of an employee’s annual salary into stock that cannot be accessed for several years, these people said. Such a move, the most intrusive yet into corporate compensation, would mark the government’s first effort to curb the take-home pay of everyone from auto executives to financial traders.
That will affect 175 of the most-highly compensated employees at AIG, Bank of America, Citi, GM, GMAC and Chrysler.
Earlier, we speculated that Feinberg’s decision not to cap pay or name names would make the pay czar role a marginal one. In theory, moving compensation towards stock (from cash) could be meaningful, and give him clout, but in reality, this won’t change much. Plenty of wall street bosses with compensation tied up in stock made horrible decisions leading up the crisis.
Naturally, the business world will howl that the companies will lose a competitive advantage and not be able to attract the best talent.
But Feinberg is aware of this, and he’s not afraid to allow millions of dollars in compensation. Yesterday, Feinberg issued the first formal approval of a bailed-out company’s compensation; he consented to new AIG CEO Robert Benmosche’s $10.5 million annual pay package, which includes stock tied to performance.