An internal government watchdog on Monday accused the U.S. Treasury Department of approving “excessive” pay packages for bailed-out companies.
The Special Inspector General for the Troubled Asset Relief Program released a report slamming Treasury officials for signing off on 18 pay raises and other 2012 compensation packages for executives at General Motors Co., Ally Financial Inc. and American International Group Inc.
Executives for the taxpayer-rescued companies “continue to rake in Treasury-approved multimillion-dollar pay packages that often exceed guidelines” set in place by TARP officials, according to the report by Special Inspector General Christy Romero’s office.
The Treasury Department said the report was littered with errors and defended its actions, saying it has to maintain a balance between limiting compensation for executives at taxpayer-rescued companies and allowing the companies to “remain competitive.”
Still, the Treasury Department will examine its policies and “consider whether any changes are appropriate,” said Patricia Geoghegan, acting special master for TARP executive compensation, in a written response to the report.
The criticism is sure to trigger a fair amount of sighing at GM headquarters, where executives have repeatedly said that government pay restrictions have hampered the company’s ability to recruit talented top executives. The report revealed that GM CEO Dan Akerson asked Treasury Secretary Timothy Geithner in March to remove the executive pay restrictions for the automaker.
In December, the government spelled out a plan to sell the rest of its GM stock within 12 to 15 months after agreeing to immediately sell 200 million shares back to GM in a $5.5 billion transaction. At the same time, the government eliminated some restrictions on GM, including prohibitions against traveling on company-owned jets.
But a Treasury Department official told the Detroit Free Press that the government does not plan to lift the pay restrictions until it has sold all of its shares. The U.S. owned about 19 percent of GM at the end of 2012.
AIG has repaid all its TARP loans, and the government has sold its shares in the once-troubled insurance company at a $17.7 billion profit.
The watchdog report recommends that the Treasury Department annually decide whether to slash compensation for the 25 highest-paid executives based on the previous year’s pay packages. It also said the government should establish procedures for monitoring pay and should tie more compensation to performance. The Treasury Department said it was already taking both of these actions.
“One lesson of this financial crisis is that regulators should take an active role in monitoring and regulating factors that could contribute to another financial crisis, including executive compensation that encourages excessive risk-taking,” the Special Inspector General reported.
For 2012, the Treasury Department approved total compensation packages of more than $5 million for three GM employees, four Ally employees and nine AIG employees, according to the report.
Akerson’s 2012 compensation package was set at $9 million with cash salary of $1.7 million and stock salary of $7.3 million. By comparison, Ford paid CEO Alan Mulally $29.5 million in 2011, while Sergio Marchionne, who heads Chrysler, Fiat and Fiat Industrial, received a combined $22.2 million from Fiat and Fiat Industrial.
GM will report 2012 compensation of its top five executives this spring.
“General Motors is performing at its highest levels in years with a string of 11 profitable quarters, and soon will have one of the industry’s newest product lineups, while complying with all TARP restrictions and special master’s decisions,” GM said in a statement responding to the watchdog report.
The U.S. Treasury Department last year froze Akerson’s pay and authorized a 12 percent cut in total compensation to GM’s top executives. But several key executives got raises.
GM Vice Chairman Stephen Girsky, who was later appointed as interim president of GM’s struggling European operations, got a $5.4 million package, including a $600,000 cash salary. GM Chief Financial Officer Daniel Ammann got a $5 million package with a cash salary of $750,000. The report specifically challenged raises for two leaders of GM’s European operations, which has lost more than $16 billion over the last 13 years.
Four GM executives got raises of 15 percent to 23 percent “on the basis that they were among the individuals that GM’s CEO most relied on, and they had received significant promotions or increased job responsibilities,” according to the report.
“Appropriately recognizing and rewarding these key contributors and competing with other large, multinational employers to attract and retain fresh talent with critical skill sets is extremely difficult within the compensation constraints imposed by” the government, GM said in its proxy statement last April.
GM posted a profit of $7.6 billion in 2011 and recorded more than $4 billion in profits in the first three quarters of 2012.
The Special Inspector’s report also criticized the Treasury Department for signing off on compensation packages for three executives at Ally Financial’s Residential Capital unit “despite knowing that the subsidiary was planning to file for bankruptcy” weeks later.