Auto execs could see pay cuts under Obama order

The top 25 executives at General Motors Co., Chrysler Group LLC, GMAC and Chrysler Financial could face pay cuts under the Obama administration’s latest plan to rein in compensation to companies that still owe billions to the government.

Kenneth Feinberg, who reviews executive compensation for the U.S. Treasury Department, has ordered cuts in the total pay for the top 25 executives at seven companies receiving the most federal aid. A department spokeswoman said Feinberg would make an announcement soon and declined to comment further.

Banks and insurance giant American International Group could suffer the brunt of the cuts, while GM and Chrysler may face minor adjustments. GM has already reduced Chief Executive Officer Fritz Henderson’s 2009 pay by 27% from last year, to $1.26 million. Chief Financial Officer Ray Young is to receive $720,000, or 15% less than in 2008.

AIG, whose underwriting of risky credit default swaps triggered the financial meltdown, received more than $180 billion in taxpayer assistance, more than three times what GM received and more than 20 times Chrysler’s aid.

Some executives’ pay won’t be cut

Leaders at General Motors Co. and Chrysler Group LLC will have to make sacrifices, too.

GM, Chrysler, GMAC and Chrysler Financial have known for months that 2009 pay for their top 25 executives could be cut; it was a condition of the federal loans that helped the automakers through their bankruptcies. GMAC and Chrysler Financial received government loans to help jump-start lethargic new-car sales in the wake of last fall’s credit freeze.

Kenneth Feinberg, who reviews executive compensation for the U.S. Treasury Department, is responding to public outrage over the resumption of lavish bonuses at banks such as Goldman Sachs and J.P. Morgan Chase. But neither of those institutions will be subject to the pay cuts because they have already repaid the billions they borrowed under the Troubled Asset Relief Program.

For Chrysler in particular, Feinberg’s actions could trigger unintended consequences.

The sale agreement that granted Fiat 20% ownership of Chrysler exempted Fiat executives who took on responsibilities at Chrysler from any government-set compensation limits. That would include Chief Executive Officer Sergio Marchionne and Olivier Francois, the newly promoted president and CEO of Chrysler brand. Marchionne’s total compensation for 2008 was 3.05 million euros, or $4.5 million, according to a McGraw-Hill profile.

But any of the top 25 who stayed with the Auburn Hills automaker during the dark days before and during its wrenching 41-day bankruptcy restructuring could see their pay cut, just as Marchionne is trying to build teamwork between Americans and Europeans.

Although Feinberg is expected to provide details of the compensation cuts later this week, reports that the average executive pay package at the seven companies would be cut by 50% overlook what likely will be significant differences in his treatment of banks and automakers.

A Treasury Department spokeswoman declined to comment.

The deepest cuts will come at the financial products division of AIG, according to the New York Times. That operation was at the epicenter of last fall’s financial meltdown when it failed to pay on trillions of dollars of risky derivative investments linked to delinquent home mortgages. U.S. taxpayers have given more than $180 billion to bail out AIG.

No executive in that unit will receive more than $200,000 in total compensation, according to a person familiar with the plan. That’s a stunning comedown for people who regularly made at least 50 times that.

At GM and Chrysler, many executives have already seen significant pay cuts.

GM said CEO Fritz Henderson will be paid $1.26 million for 2009, or about 27% less than he received in 2008. Chief Financial Officer Ray Young’s pay has dropped about 15%, to $720,000.

Chrysler has sent Feinberg a compensation plan for its top 25 people that was “developed in a manner both consistent with our traditional compensation practices and responsive to the current financial position of the company,” the company said in a statement. – Freep

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