In June 2009, President Obama appointed Kenneth Feinberg, the Pay Czar, as he is often referred to in the media, after public anger exploded over high executive compensation at companies that received Troubled Asset Relief Program (TARP) bailout funds. Feinberg is well versed in areas of human resources valuation, and consensus building without the need for litigation. Feinberg previously oversaw the distribution of funds for victims of the attacks of Sept. 11, 2001. In August, 2009, revision to the TARP legislation attached executive compensation restrictions to the pay for the top 25 earners of any company that received TARP funds, and compensation totaled more than $500,000 from October 2008 through February 2009, including 2008 end-of-the-year bonus payments. The revisions to the TARP legislation also gave Feinberg “wide authority to attempt to recoup money” paid to employees at companies that received TARP funds.
A few weeks ago in March, Feinberg completed his review of executive compensation at 419 companies that had received bailout funds. Feinberg in his discretion determined whether any payments were contrary to public interest and may request that individual executives return the excess money received. Unfortunately the TARP legislation, despite its “wide authority to attempt to recoup money“ does not specifically provide Feinberg with any enforcement authority, regarding the recoupment of excess executive compensation. As such, Feinberg cannot force executives to return the money. However, this lack of enforcement authority does not seem to concern Feinberg. He believes that the he can be very persuasive. An interview with Feinberg discussing his authority to recoup funds from executives is available here. Executives at several companies fall into this category including JP Morgan Chase, Goldman Sachs, AIG, Citigroup, General Motors, and GMAC. Bank of America repaid $45 billion to the U.S. Treasury, two days before Feinberg’s report was released, and effectively removed itself from Feinberg’s scrutiny.
Feinberg's executive compensation restrictions and recoupment power is regarded by some as a bold expansion of his “review of pay powers,” and may send a signal to Wall Street that it cannot return to big bonus payments without intense public and governmental scrutiny, and ire. Cornelius Hurley, director of the Morin Center for Banking and Financial Law at Boston University, believes that Feinberg's look-back plans are necessary. Hurley stated that “[I]f the notion was to see who had their hand in the cookie jar when the crisis was unfolding, then that should be revealed."
Recently, the New York State Comptroller released a report in February showing that bonuses on Wall Street rose 17 percent in 2009 to $20.3 billion. This figure is a little incredulous to me given that the vast majority of Americans are struggling to save their jobs, homes, retirements, and feed their families. Wall Street's disconnect with human suffering or basic moral compass as to what is appropriate, reminds me of the Army-McCarthy Hearing which was the first federal hearing broadcasted live to the American people in February 1950. Senator Joseph R. McCarthy was chairman of the Senate Committee on Government Operations and its Subcommittee on Investigations. McCarthy demanded preferential treatment for his aide who had been drafted, and was scheduled to be sent abroad. When the U.S. Army refused to extend any preferential treatment on Senator McCarthy’s behalf by deciding not to intercede in the draft process, Senator McCarthy immediately commenced an investigation of the U.S. Army. McCarthy was summoned to appear before Congress to answer questions regarding his motive for commencing an investigation of the U.S. Army. The verbal inter-change between McCarthy and Special Counsel for the U.S. Army, Joseph N. Welch, became very heated. At one point Welch, exasperated with McCarthy’s sarcasm and blatant lack of respect for the U.S. Army, Congress, and anyone who dared to question his actions, lost his usual reserved demeanor, stood up and yelled at McCarthy-- “You have done enough. Have you no sense of decency sir, at long last? Have you left no sense of decency?” Americans were outraged by McCarthy’s lack of respect, decency, and his sense of entitlement to preferential treatment. Americans wasted no time in expressing their outrage to their elected officials. Within a few months of the hearing, the Senate voted to condemn McCarthy.
Public exposure has proven to be a powerful tool, as evidenced by the condemnation of Senator McCarthy, and the slow but largely successful repayment of bonuses that were previously paid to AIG employees. However, some experts are doubtful, “Wall Street might be immune to shame,” said Russell Roberts, an economics professor at George Mason University, and research fellow at Stanford University's Hoover Institution. Roberts stated that, “[I]f the goal is to shame executives, there is not much shame on Wall Street, and I doubt it would have much effect if that is [Feinberg’s] only lever." I would not underestimate Feinberg. He has proven to be very very persuasive, and Americans are outraged. It may prove to be a combustible combination.
Lydie Nadia Cabrera Pierre-Louis