And Then There Were Six

The Pay Czar oversees the compensation practices at seven companies: AIG, Citigroup, BofA, General Motors Corp., GMAC Financial Services, Chrysler Group, and Chrysler Financial.  In reviewing the compensation packages, the Pay Czar has had a reputation for toughness, cutting the compensation packages for top officers significantly. 

Nonetheless, the Pay Czar has not reduced these officers to penury.  He has allowed compensation packages that total $10.5 million.  With respect to Citigroup, the Pay Czar approved six packages with a reported value of over $8 million.  Most of the compensation has been in the form of stock or stock related units.  In short, the Pay Czar has continued to allow lucrative amounts but required that most of it be in the form of long term forms of compensation.

Yet this is too much for the seven companies.  BofA has indicated that it will repay the TARP money, freeing it from the oversight of the Pay Czar.  Others are seeking to do the same thing.  While there may be other benefits that come from repaying the TARP funds, unlimited amounts of compensation is one of them.

We shall watch as each of the seven companies depart from the oversight of the Pay Czar.  Without systematic change, the permanent impact of the Pay Czar will be negative.  It will probably have resulted in some outflow of talent to other institutions, with no permanent benefit to the companies effected.  The logic of requiring "reasonable" compensation that encourages long term goals only for seven companies has never been entirely clear.  It becomes less clear as each one departs.