Treasury Approved Outsize Pay for Execs at Ally, AIG and GM: Report

The Treasury Department is failing to rein in outsize pay for executives at some of the biggest bailed-out companies, according to the independent watchdog that is overseeing the Troubled Asset Relief Program.

Treasury officials awarded 63% of the 25 highest-paid employees at Ally Financial, AIG and General Motors total pay packages in 2012 that topped the median pay for executives at similar companies by more than $37 million, the special inspector general for Tarp said in a report released Monday.

The Treasury also approved cash salaries higher than $500,000 for 23 employees at the three companies, four times as many as it approved in 2009.

Ally, AIG and GM all face limits on what they can pay top executives until the companies fully repay hundreds of billions of dollars of financial assistance they received from the government during the financial crisis.

The law that established Tarp limits pay for executives at companies that receive assistance. While Treasury set additional limits on companies like Ally, AIG and GM that received so-called exceptional assistance, the department failed to monitor whether executive pay at the three firms stayed within the department's guidelines, the report charges.

The inspector general reached a similar conclusion in a report it released last year. In Monday's report, it said that despite its warnings that Treasury lacked the policies and procedures to ensure its own guidelines on pay are met, the department has "made no meaningful reform to its processes."

"Americans have grown to expect Tarp companies AIG, GM, and [Ally] to push against Treasury guidelines designed to curb excessive pay for top executives," Christy Romero, special inspector general for Tarp, said in a statement. "However, we also expect Treasury to look out for taxpayers who funded the bailout of these companies by holding the line on excessive pay."

Under the guidelines, cash salaries generally should not top $500,000, and total compensation should aim to match the 50th percentile for comparable employees at similar companies, according to the report.

But of the 69 executives whose pay packages were approved by the Treasury in 2012, 54% received pay of $3 million or more, 30% received pay of between $3 million and $4.9 million, and 23% received pay of at least $5 million, according to the inspector general's report.

The report also charges Treasury with approving pay packages above the 50th percentile by roughly $3.75 million for three employees of Ally's Residential Capital unit despite knowing that ResCap intended to file in May for bankruptcy.

Romero said that the office Treasury created to supervise executive pay at Tarp companies that failed to analyze independently pay proposals by Ally, AIG and GM.

The paymaster also agreed to use shares of restricted stock in only half the packages the Treasury reviewed and removed the stock, which ties pay to companies' performance over the long term, from some packages entirely. The inspector general recommends that Treasury should return to using long-term restricted stock for senior employees.

"In 2012, these three Tarp companies convinced Treasury to roll back its guidelines by approving multimillion-dollar pay packages, high cash salaries, huge pay raises, and removing compensation tied to meeting performance metrics," Romero added. "Treasury cannot look out for taxpayers' interests if it continues to rely to a great extent on the pay proposed by companies that have historically pushed back on pay limits."

Treasury rejected the findings and charged Romero with misconstruing the pay scale. "The 50th percentile is merely a benchmark," Patricia Geoghegan, Treasury's acting special master for Tarp compensation, wrote to Romero in a letter dated Friday. "The compensation of some individuals may be above that benchmark; whereas others may fall below."

According to Geoghegan, nearly half the pay packages at Ally and GM in 2012 were at or below the benchmark, while more than half at AIG were below it. She added that her office cut average cash pay for the 25 highest-paid executives at seven companies that originally received exceptional assistance by roughly 90% while slashing their total pay by more than half.

The paymaster "has limited excessive compensation while at the same time keeping compensation at levels that enable the ‘exceptional assistance' recipients to remain competitive and repay Tarp assistance," Geoghegan added.

Ally spokeswoman Gina Proia said in an email that the company's "executive compensation is in line with all TARP restrictions and special master determinations."

AIG spokesman Jon Diat said in an email that the company, which left the Tarp program in December, "worked closely with the special master to make sure we paid our employees market-based compensation, including appropriate amounts of incentive pay, under a rigorous review process that will continue into the future."

A GM spokesman declined to comment.

Romero's report urges Treasury to reassess and roll back if necessary executive pay at so-called exceptional assistance companies each year. The report also calls on the Treasury to develop policies for approving pay that exceeds the department's guidelines, to independently assess whether a good reason exists to award someone a cash salary more than $500,000, and to link compensation for the most senior employees to their companies' performance over the long term.

Though Geoghegan said Treasury's current procedures largely achieve the inspector general's goals, the department would consider whether any changes might be needed.

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