Major paycuts ordered at rescued firms
US firms who received large amounts of goverment aid during the height of the financial crisis have been asked to make steep cuts in salaries of top executives.
US President Barack Obama’s administration ordered drastic salary cuts in US firms who were bailed out by the government during the height of the financial crisis, US media reported on Thursday.
The seven companies under the scanner are AIG, Bank of America, Citigroup, General Motors Co., GMAC Inc., Chrysler Group LLC and Chrysler Financial. They will be asked to cut the salaries of their top 25 executives by up to 90 percent.
According to the New York Times, the 175 high-ranking employees will also see their total annual compensation, including stocks, perks and bonuses, drop by almost 50 percent. The cash they would have received will be replaced by stock that will be restricted from immediate sale.
“This is really a reaction to the outrage that we have seen over the second round of bonuses, some of them record level,” said Nathan King, FRANCE 24 correspondent in New York.
‘Salary Czar’ Kenneth Weinberg of the US Treasury was appointed by Obama to handle the pay and compensation issue as part of the $700 billion government bailout Trouble Asset Relief Programme (TARP). He is expected to unveil the plan within the next few days.
Some of the toughest measures will be enforced on the financial products unit of insurance giant American Insurance Group (AIG) which received government aid valued at more than $180 billion at the height of global financial turmoil.
AIG came under fire for paying salaries and retention bonuses worth $165 million to employees after taxpayers pledged up to $180 million to keep it afloat.
No employees from the unit, blamed for bringing the company to a state of nearly-collapse, will be paid more than $200,000 of total compensation.
Another case that may skew the average is the salary that Bank of America's outgoing chief executive Ken Lewis has agreed to forfeit. He will still be paid $70 million in retirement money by the bank, which received $45 billion in government aid.
However, the impact of the salary cuts is expected to be less significant and bring no lasting repercussions to the Wall Street as the plan is limited to only a few individuals.
“It is not a change of culture… It is a slap on the wrist for the companies that haven’t turned around quickly and haven’t paid back the cash,” said King.
The Washington Post said Weinberg’s plan is expected to crack down on extravagant individual corporate perks worth more than $25,000 per year – like country club membership, private planes or company cars.