Wall Street Journal: New Pay Guidelines Raise Questions

Wall Street Journal: New Pay Guidelines Raise Questions

June 10 2009

The Obama administration outlined its new approach to executive pay Wednesday, with tough restrictions on firms receiving large amounts of government aid, but only suggested guidelines for most other companies.

The new approach is “a win for most affected businesses,” predicted Steven Hall, a managing director at Steven Hall & Partners, an executive-pay consultancy in New York. “They’re going to be able to attract and retain talent without artificial limits on how they pay people.”

He expects financial service firms to continue offering executives restricted shares without performance triggers, a popular industry practice.  Mr. Hall expects fewer companies to provide “golden parachutes” or supplemental pensions for departing executives.  But he said some companies dropping supplemental pensions may grant executives extra cash or stock “to make up the difference.”

Mr. Hall and others expect the seven companies receiving “exceptional assistance” from the government to face big challenges recruiting and retaining executives.  Kenneth Feinberg, the administration’s new pay czar, will have authority to review, reject and even set up pay for the top 100 earners at those companies:  American International Group Inc., Bank of America Corp., Citigroup Inc., General Motors Corp., GMAC LLC, Chrysler LLC and Chrylser Financial.

Among other things, Mr. Hall anticipates many of these companies will eliminate retention bonuses and exit packages.  More top executives “will be pushed out with no severance,” and others will quit because “they aren’t used to this level of oversight [and] limitations on their pay,” he suggested.