Treasury announces deep cuts to auto, financial exec pay

David Shepardson / Detroit News Washington Bureau

Washington -- The U.S. Treasury this afternoon unveiled sweeping pay cuts for the top 25 executives at seven companies that received government bailouts, including General Motors Co., Chrysler Group LLC, GMAC Inc. and Chrysler Financial LLC.

In nearly all cases, salaries for the executives will be no more than $500,000 annually. No one at Chrysler will earn more than $500,000 in salary, and the company's CEO Sergio Marchionne will receive no salary from Chrysler, but be paid by Fiat SpA. GM CEO Fritz Henderson will see his cash salary fall by about 25 percent to $950,000 -- down from $1.26 million. He will be eligible for "stock salary" grants that he can't cash in for two years -- and then just one-third per year. He will also be eligible for long-term restricted stock compensation of $1.8 million -- but only after GM repays its government loans. In total, Henderson could eventually receive $5.445 million in pay for 2009.

Most of GM's covered employees were in its Promark asset management unit -- 15 of the top 25 employees. These employees already had seen huge compensation cuts because of the sharp decline in the value of GM's stock.

Just one other employee will receive more than $500,000 at GM in salary.

GM's pay for its top 25 execs will fall by 31 percent for salaries and 20.4 percent in total compensation. GMAC's salaries fell by 50 percent and total compensation 86 percent.

The Treasury released the salaries of the 25 executives at the companies, but didn't identify them. The pay cuts apply to November and December pay, not to money the executives earned in the first 10 months of the year. But the lower pay will be the basis for 2010 compensation.

The executives will get a chunk of salary in stock, but they can't cash that out for two years, and then must do so over three years.

Chrysler said it would not identify its highest-paid executives.

"Our initial submission -- which was approved with minor changes -- was developed in a manner that is consistent with practices in our industry, the geographic location of our business and our traditional compensation practices, and is responsive to the current financial position of the company," Chrysler said in a prepared statement. "We will continue to work closely with the Office and cooperate fully with all requests."

GMAC called the compensation process fair and constructive.

"We believe the plan will enable us to retain key talent needed to continue the transformational efforts within the company and maximize the investments by our shareholders," said Kim S. Fennebresque, chairman of GMAC Board of Directors' compensation, nominating and governance committee.

The Treasury's special master for executive compensation, Kenneth R. Feinberg, briefed reporters and released results of his review of the proposed pay packages for the companies that have received a total of $300 billion from the TARP fund, which also includes American International Group, Citigroup and Bank of America.

Feinberg said he agreed to higher pay at Chrysler Financial because he said it is in the process of liquidating and will close by the end of 2011. Chrysler Financial's pay will decrease 30 percent over 2008 levels, and its total compensation fell by 56 percent.

Cerberus Capital Management LP officials said they were unaware of any liquidation orders and that closing isn't part of their business plan.

Feinberg announced he is cutting average compensation by 90 percent and salaries by 50 percent at the seven firms, and changing corporate governance, such as splitting the jobs of CEO and chairman. He also unveiled new scrutiny for annual executive perks worth more than $25,000 annually.

He said his moves would end company payment of golf club memberships or use of private planes for the executives at these firms. Officials can't "gross up" -- or pay the taxes -- on executives bonuses

Executives at GM and Chrysler will take smaller hits than financial company executives, since they make less money, and many auto execs lost significant compensation during the companies' restructuring in bankruptcy. Feinberg told reporters that was a factor in his decisions.

Executives at the seven companies will not be able to cash in long-term restricted stock until the companies repay their government loans. But in the case of GM in which the Treasury swapped $42 billion in loans for a 61 percent majority stake in the company, it appears that only the remaining $8 billion loan must be paid back to qualify.

dshepardson@detnews.com (202) 662-8735