WASHINGTON - The Treasury Department has told four bailed-out companies that they can't pay some of their top executives more than $500,000 cash per year.
But the edict, announced yesterday by the Obama administration's pay czar, Kenneth Feinberg, contains a hedge: The rule won't always apply.
Feinberg said lobbying by Treasury and Federal Reserve officials helped persuade him to exempt about 12 executives at the four firms combined from the pay cap. In all, the cap will affect 300 management employees at Citigroup Inc., GMAC, American International Group Inc., and General Motors.
The move highlights tension between the government's competing priorities: appeasing public fury over outsize pay, while making sure the firms retain the talent they need to stay competitive and repay billions of dollars in taxpayer bailouts - for which the federal government received an ownership stake.
"It's a little like you have the left half of your brain and the right half of your brain arguing," said Douglas Elliott, a fellow at the Brookings Institution and former investment banker.
"As an owner, you can see why the government wouldn't want to make these rules too onerous," Elliott said. "But as a regulator, following the will of Congress, there's an intention to hold these firms accountable and to hold down what they pay their top executives."
Outrage over banker salaries exploded this year after it was revealed that AIG would pay millions in bonuses to employees of the division that had toppled the company - and nearly caused the nation's financial system to collapse. The government provided up to $182 billion to stabilize AIG.
The Obama administration responded by appointing Feinberg. He oversees pay packages for the top 100 earners at the companies that received the largest bailouts.
As they negotiated their pay packages, the companies warned that pay restrictions could keep them from attracting and retaining top talent. Without competitive pay, they said, it would be hard to regain their footing and repay their bailout money.
Pay restrictions led AIG general counsel Anastasia Kelly to indicate she would leave by year's end, the New York Times reported this week. Four other senior employees whose pay is restricted by Feinberg also indicated they could leave, according to the paper.
AIG spokesman Mark Herr declined to comment on the new pay restrictions. Regarding the report about Kelly's departure, he would say only that she has not resigned.
Officials from the Fed and Treasury, concerned that too many departures could be crippling, asked Feinberg to relax pay rules for workers deemed essential to their company's success. Treasury owns nearly 80 percent of AIG.
Feinberg said that out of several dozen requests from the companies, he allowed about 12 employees to earn up to $1.5 million in cash for 2009.
A Treasury spokeswoman declined to comment yesterday. Fed officials did not immediately respond to requests for comment.
President Obama will meet Monday with top executives from banks that mostly have repaid their bailout money. Among other things, he will ask them to adjust their executive-compensation policies to reflect the same goals Feinberg pursued with his rulings: discouraging excessive risk-taking and tying pay to long-term performance.
In October, Feinberg announced pay packages for the top 25 earners at seven companies. Yesterday's rules affect the next 75 top earners at four of those companies.