It pays to get a bailout
by Liz Hester
A new report from the inspector general of the Troubled Asset Relief Program (yep, TARP) criticized Treasury for approving pay raises at some of the companies that receive bailout money.
Here’s the story from the Wall Street Journal, which quoted the woman in charge of TARP near the top.
The U.S. Treasury failed to rein in pay at companies that received federal bailout funds, a watchdog said Monday, in a report that highlights continued friction over the government’s oversight of executive pay at companies such as General Motors Co. and Ally Financial Inc.
The Treasury in 2009 gained power to approve executive pay at firms that received major federal assistance during the financial crisis, following public outrage over big bonuses paid at American International Group Inc. after its financial rescue. Both General Motors and Ally Financial still are subject to the pay oversight. The Treasury recently unloaded its remaining shares in AIG, so it no longer has to submit pay packages for government approval.
Christy Romero, the Special Inspector General for the Troubled Asset Relief Program, on Monday said the Treasury failed to look out for taxpayers by relying “to a great extent on the companies’ proposals and justifications without conducting its own independent analysis.” Ms. Romero also said the Treasury hasn’t put in place policies that would ensure salaries are within guidelines designed to discourage excessive risk taking by companies receiving bailout aid.
The New York Times points out that Treasury didn’t make reforms to its processes in terms of executive pay.
The report charges that Treasury has failed to rein in excessive pay at the three firms. It found that Treasury approved all pay raises requested for A.I.G., Ally and General Motors executives last year, with individual compensation increases of $30,000 to $1 million. It also faults the Treasury overseer for allowing pay packages above what comparable executives at other firms receive.
The report also accuses Treasury of failing to follow up earlier recommendations made by the special inspector general. A report issued a year ago made many similar criticisms, arguing that the Treasury officials “could not effectively rein in excessive compensation” because the most “important goal was to get the companies to repay” the government.
“Treasury made no meaningful reform to its processes,” it said in this year’s report. “Lacking criteria and an effective decision-making process, Treasury risks continuing to award executives of bailed-out companies excessive cash compensation without good cause.”
The Associated Press story pointed out that even executives of bankrupt companies were paid.
The Special Inspector General for the Troubled Asset Relief Program said Treasury approved all 18 requests it received last year to raise pay for executives at American International Group Inc., General Motors Corp. and Ally Financial Inc. Of those requests, 14 were for $100,000 or more; the largest raise was $1 million.
Treasury also allowed pay packages totaling $5 million or more for nearly a quarter of the executives at those firms, the report says.
Also noted: A $200,000 raise was approved for an executive of Ally’s mortgage-lending subsidiary Residential Capital LLC just weeks before ResCap filed for bankruptcy protection. Ally was GM’s financial arm until it was taken over by the government in the bailout.
But not everyone thought the pay was excessive. Here’s the response from the New York Times story:
In a response letter included in the report, Patricia Geoghegan, acting special master for TARP executive compensation, disputed several of its assertions. For one, the compensation packages for A.I.G. and General Motors executives were comparable to those received by executives at other firms, Treasury said. Pay packages at Ally were higher than the median because of “unique circumstances,” it said.
Treasury also noted that the Obama administration had cut pay for executives at bailed-out firms and required that the companies pay top employees with more stock and less cash. Treasury “continues to fulfill its regulatory requirements,” the letter said. It has “limited executive compensation while at the same time keeping compensation at levels that enable the ‘exceptional assistance’ recipients to remain competitive and repay Tarp assistance.”
No matter is the pay was earned or not, it’s another public relations setback for firms that needed bailout money. It also creates a problem for retention of top executives and those with special skills. I’m sure no public company wants the government to tell them how to pay their people, but taxpayers have the right to ask why it’s so much more than they make on average.