SIGTARP: Treasury Failed to Control Excessive Pay for Bailed-Out Firms

SIGTARP: Treasury Failed to Control Excessive Pay for Bailed-Out Firms

01/28/2013 BY: ESTHER CHO

Once again, Treasury has failed to control excessive executive pay at the expense of taxpayers, according to a report from the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP).

After a previous evaluation on executive compensation,SIGTARP found Treasury approved “excessive” pay packages and salary increases for executives at three firms that received bailout-funds: American International Group (AIG), General Motors (GM), and Ally Financial.

After investigating pay in 2012, SIGTARP reported Treasury approved pay packages worth $5 million or more for 23 percent of the top 25 employees at AIG, GM, and Ally. The figure represents 16 out of 69 employees, with 9 from AIG, 3 from GM, and 4 from Ally. Treasury also approved pay ranging from $3 million to $4.9 million for 21 out of the 69 employees, with 12 employees from AIG, 4 from GM, and 5 from Ally.

In addition, Treasury also approved all 18 proposed pay raises from the companies in 2012. According to the report, the pay raises ranged from $30,000 to $1 million. GM and Ally each proposed nine pay raises, while AIG proposed one pay raise worth $1 million for the CEO of its subsidiary, Chartis.

Though, AIG has paid the full $182 billion owed to Treasury and its bailout led to a positive return. On the other hand, GM and Ally still owe a combined $36.2 billion to taxpayers, according to the report.

In comparison, the report also pointed out that the 2011 median household income of taxpayers who fund the TARP recipients was about $50,000.

SIGTARP, which functions as watchdog agency for the government’s TARP program, explained that when Congress passed TARP, limitations were placed on executive compensation for program recipients. Treasury was given the role of implementing the limitations and created the Office of the Special Master (OSM) to set compensation for top executives.

However, the report stated OSM failed to follow its own guidelines to reduce excessive pay. For example, total compensation should generally not exceed the 50th percentile for similar employees, but Treasury awarded total pay packages exceeding the 50th percentile by more than $37 million for about 63 percent of the top 25 employees at the three companies, according to the report.

In the previous report examining executive pay, SIGTARP found that from 2009 to 2011, seven companies that received TARP funding were approved for pay packages worth $5 million or more for 49 individuals.

In the most recent report, SIGTARP made several recommendations: Treasury should reevaluate compensation for the top 25 employees from the prior year; develop policies, procedures, and criteria for approving pay in excess of Treasury guidelines; independently analyze whether good cause exists to award a pay raise or cash salary over $500,000; and return to using longterm restricted stock for employees.

In response to a draft of the SIGTARP report, Treasury expressed disagreement with the findings in a letter dated January 25, 2013.

Patricia Geoghegan, acting special master for TARP executive compensation, stated, “Although we disagree with your findings and conclusions, OSM has benefited from the audit review.”

The letter also said, “facts show that OSM continues to fulfill its regulatory requirements,” specifically stating AIG’s average total compensation for the top 25 was at the 48th percentile of similar positions at similar companies, while GM’s average was at the 50th percentile, and Ally’s was between the 50th and the 75th.

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