Pay czar issues salary caps for execs

Kenneth Feinberg limits pay for hundreds of employees at AIG, General Motors, Citigroup and GMAC at $500,000.

New pay restrictions were unveiled Friday for hundreds of top employees at the nation's biggest bailout recipients.

The ruling, imposed by White House "pay czar" Kenneth Feinberg, will impact 75 out of the 100 highest-paid employees at four companies - Citigroup (C, Fortune 500), AIG (AIG, Fortune 500), automaker General Motors as well as GMAC.

No employee will receive base compensation of more than $500,000 this year in terms of cash and stock, with just a handful of exceptions.

The move is part of a broader effort by the administration to protect American taxpayers' massive investment in these companies by tying compensation to the company's performance.

"We want to minimize these runaway perks and other compensation practices," Feinberg said during a briefing in Washington Friday with the media.

Feinberg's edict will take effect Friday and will not be retroactive. That means that a banker with a $1 million base salary will today begin receiving paychecks prorated to a $500,000 annual base salary for the last three weeks of the year. However, these guidelines are expected to serve as the model for 2010 pay as well.

This marks the second step in what is expected to be a series of reviews by Feinberg on employee pay at the country's biggest bailout firms.

In October, he cut total compensation for the top 25 executives at seven rescued firms by about half, scaling back salaries by 90% and transferring payments into performance-based, longer-term stock options.

That review affected 136 top executives at seven companies including Chrysler and its financing arm Chrysler Financial, all of whom received more than one round of bailout funds.

Those two outfits are exempt from this round because all of their employees earn $500,000 or less, which is the cut-off for Feinberg's oversight.

Those companies that have had to submit to Feinberg's review, have argued that the compensation restrictions have already prompted some of their top employees to look for work elsewhere. At the same time, they contend that pay caps will hinder their companies' performance, making it difficult or impossible for them to pay back the billions of dollars in bailout funds.

Feinberg was quick to draw distinctions between this review and his last round, which was met with scorn by several of the companies' top brass.

Bank of America dodges a bullet
AIG chief executive Robert Benmosche for instance reportedly got so upset about the pay curbs he threatened to quit the company. He later issued a statement saying he was "frustrated" with the government's compensation ruling but remained committed to AIG.

"There's been very little rancor," Feinberg said Friday. "I think there's general acceptance the process has worked quite well"

He added that he tried to be very attentive to companies' concerns in his latest review.

Nearly a dozen individuals "deemed to be very essential" will be granted paychecks of more than $500,000. Most of them will earn between $500,000 and $950,000 annually. Only one individual received over $1 million. Feinberg would not say which companies these executives work for.

The desire to get out from under this latest installment of pay curbs may very well explain why large financial institutions have been so anxious to return bailout money back to the government recently.

This week, Bank of America (BAC, Fortune 500) got out from under the government's thumb by repaying the full $45 billion in bailout money it received. The company did not fall under Feinberg's purview as a result.

Citigroup has also reportedly been scrambling to pay back the billions of dollars in taxpayer it accepted over the past year.