'Pay Czar' Concedes: If Wall St. Pay Breaks Records, Then 'Our Work Has Not Been Successful'
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Testifying before the Congressional Oversight Panel on Thursday, Kenneth Feinberg came close to admitting that he had failed in his job as pay czar, saying he did the best he could with the tools he was given.
Damon Silvers, director of policy and special counsel for the COP, pressed Feinberg on what exactly he means by the phrase "public interest." Feinberg admitted the application of that ideal is complicated, and even contradictory.
In his final act as special master for compensation at the Treasury, Feinberg, who was charged with reporting the pay levels for executives at TARP bailed-out banks, said in July that the payments, though "ill-advised," were not "contrary to the public interest." He didn't say which firms paid how much of the $1.6 billion total and added that he didn't advise trying to take that money back.
In response to Silvers' questioning Thursday, Feinberg said the root of the compensation problem was that firms were "using taxpayer money to feather their own nests." How, then, Silvers asked, was that not contrary to the public interest?
"It's a very close question, I admit," Feinberg said. "I debated this for many, many weeks."
The dilemma, Feinberg allowed, on Silvers' urging, was that while paying executives with taxpayer money might not have been in the public interest, attempting to get that money back would also have contradicted the public interest.
Claw-backs would have been inappropriate, Feinberg said, because 90 percent of the compensation went to companies that, at the time, had repaid their TARP bailouts (although Silvers noted that, for instance, the government later gave Citigroup more assistance, which has still not been fully repaid). Feinberg also said the companies did not break any laws, to which Silvers responded that that was irrelevant -- Feinberg's official standard was the public interest, not the law.
Silvers offered a suggestion: "You felt that it was not in the public's interest to have an accurate finding here because it would trigger a process of recapture that you felt was not in the public interest to trigger," he said, later noting the "irony" of Feinberg's position.
"You say it well," Feinberg said.
Feinberg repeatedly emphasized that he had no authority to demand the compensation back. "Don't pooh-pooh the fact that I didn't have the power to claw it back," he said. "All I could do under the statute was seek, beseech, request, urge."
Among the recommendations Feinberg discussed for improving compensation structures was the practice of paying executives with their company's stock. He cited $500,000 as a reasonable limit to cash pay and said the rest of an executive's pay should come in stock that can't be sold for a period of several years.
As of now, no company is required to accept these proposals.
"Only time will tell if I was successful in achieving the right balance, but the initial indications are positive," reads Feinberg's prepared statement (pdf).
A glimmer of hope, he said, is that 84 percent of top executives at companies he reviewed did not leave their firms, suggesting that his pay recommendations could potentially be integrated into Wall Street culture.
But Wall Street pay remains high. As the Wall Street Journal reported last week, financial firms are on track to pay executives the highest amount ever, to break a record for the second year in a row.
While Feinberg didn't concede that point outright, he said that if it is true, then "our work has not been successful, and it's not being followed, and that's a problem."
WATCH the hearing on CSPAN.
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First Posted: 10/21/10 04:17 PM ET Updated: 05/25/11 07:05 PM ET