WASHINGTON — The Treasury Department on Thursday ordered seven companies that received billions of dollars in government bailouts to chop total compensation for their top executives. But the big reductions will not apply to pay earned before November.
Kenneth Feinberg, the Treasury official leading the pay review, told reporters that average salaries for the top 25 executives are being cut 90 percent starting next month.
The action will apply to the top executives at Bank of America, American International Group, Citigroup, General Motors, GMAC, Chrysler and Chrysler Financial.
Meanwhile, the Federal Reserve unveiled a proposal Thursday that for the first time would police banks’ pay policies to ensure they don’t encourage employees to take gambles like those that contributed to the financial crisis.
The Fed plan would cover thousands of banks, including many that never received a bailout. The central bank would review — and could veto — pay policies that could cause too much risk-taking by executives, traders or loan officers.
The reduced pay levels will be the base for making decisions on salary in 2010, Feinberg said.
The executives will still be subject to compensation limits as long as their companies are receiving support from the government’s $700 billion bailout fund. Their total compensation was being cut in half, on average.
Bank of America complained that the pay restrictions would hurt its ability to retain top employees.
“Competitors not subject to the pay restrictions already are exploiting this situation by identifying our top performers and using pay concerns to recruit them away,” Bank of America spokesman Scott Silvestri said.
Those facing pay restrictions outside the executive suite hold leadership positions in areas such as finance and investment banking at the banks, and in manufacturing, brand management and design at the auto companies.
They come with years of experience, whether it’s making deals or overseeing car design. For example, Ford, in far better shape than its two rivals, could lure executives who would be difficult for Chrysler and GM to replace.
“There will be a fallout,” said Janice Reals Ellig, co-CEO of the executive- search firm Chadick-Ellig. “Talent that is short-term-focused because they have big mortgages, college-education payments and other things will feel more pressure to leave.”
