(Archived Content)
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WASHINGTON – On April 26, 2013, the Acting Special Master for TARP Executive Compensation, Patricia Geoghegan, released 2013 compensation determinations for the “top 25” executives at the two remaining companies that received exceptional Troubled Asset Relief Program (TARP) assistance—Ally Financial (formerly GMAC) and GM. Five of the original seven recipients of exceptional assistance—Bank of America, Citigroup, Chrysler Financial, Chrysler, and AIG—have exited TARP. Looking at those original seven companies, as a group, the taxpayers have now recovered more than the total assistance provided plus an additional positive return.
In 2013, the Office of the Special Master (OSM) determinations regarding the two companies that still have exceptional assistance outstanding reflect the following:
- CEO compensation remains frozen: The CEO compensation packages payable by Ally Financial and GM have not increased. Although there has been some modification in the mix of stock salary and long-term restricted stock for these CEOs, the overall amount of CEO compensation has continued unchanged since 2010.
- No cash increases: The cash compensation for the top 25 executives at the two companies has not increased from 2012 levels. Moreover, for 2013, cash salaries for the top 25 executives at the two companies as a group are on average four percent below the median for cash salaries and 56 percent below the median for total cash compensation for similar positions at similar companies. [1]
- Compensation continues to be predominantly in stock and therefore performance-based: All but one of the pay packages approved in 2013 contain a majority of stock compensation (rather than cash). Transferability of the stock remains subject to deferral generally over a period of three years, and hedging of the stock compensation remains prohibited. Bonuses are subject to clawback if they were based on materially inaccurate financial statements or other materially inaccurate performance metrics.
- OSM continues to limit total direct compensation:
- GM’s average pay packages for its top 25 employees for 2013 do not exceed the 50th percentile compared to similar positions at similar companies.
- Ally Financial’s average pay packages for its top 25 employees for 2013 are mid-way between the 50th and the 75th percentiles compared to similar positions at similar companies. [2]
- Most pay (81 percent overall in 2013) is in the form of stock, which means that the ultimate value of the majority of the pay of top executives will depend on the future performance of the company, generally over a three-year period.
- Overall, the 2013 cash compensation for the top 25 executives at the two companies decreased 30.9 percent and their total direct compensation decreased 13.3 percent from 2012 levels. [3]
- The companies have made progress toward repaying taxpayer investment:
- GM – Of the almost $50 billion of TARP funds provided to GM, approximately $30.4 billion had been recovered as of March 31, 2013. In December 2012, Treasury announced its intent to fully exit its investment in GM within the next 12-15 months, subject to market conditions. In connection with that announcement, GM purchased 200 million GM shares from Treasury for $5.5 billion. In January 2013, Treasury took the next step in its plan to sell its approximately 300.1 million remaining shares of GM common stock with the initiation of a pre-arranged written trading plan.
- Ally Financial – Treasury has recovered approximately one-third ($5.8 billion) of its original $17.2 billion investment in Ally. Treasury expects to begin monetizing its remaining investment as Ally completes two strategic initiatives announced on May 14, 2012: the Chapter 11 bankruptcy proceeding for its mortgage subsidiary, Residential Capital, LLC (ResCap) [4], and the sale of its international auto finance operations. ResCap has made significant progress in its Chapter 11 proceeding. In addition, Ally announced last year that it had reached agreements to sell its international auto finance operations for expected total proceeds of $9.2 billion. Several of these sale transactions have closed with the remainder due to close at various times over the course of 2013.
The Acting Special Master seeks to achieve a balance between limiting compensation payable by the companies while at the same time permitting them to pay compensation at levels that enable the exceptional assistance recipients to remain competitive and repay TARP assistance. Beginning with the initial determinations in 2009, OSM has reviewed compensation proposed to be paid by the companies with the intent that:
1. Pay generally should not exceed the levels paid for similar positions at similar companies, and
2. Pay packages should consist mostly of stock so that compensation is tied to the long-term performance of the company and executives are not focused on short-term results or encouraged to take excessive risks.
OSM followed the same guidelines established in 2009 for the 2010, 2011, 2012, and 2013 top 25 determinations. OSM continues to receive detailed submissions from the companies, which it carefully evaluates. OSM also reviews and assesses market data to make sure that compensation payable by the exceptional assistance companies does not exceed the levels paid for similar positions at similar companies. As in years past, OSM limits cash salary and requires that most compensation be in the form of stock, requires that incentive compensation be awarded only on the achievement of pre-established performance goals, and limits perks.
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[1] In certain instances every year, OSM has approved a cash salary above $500,000. In virtually every one of these cases, however, the majority of the executive’s pay package has been in the form of stock-based compensation.
[2] The above results are consistent with the benchmarks OSM has historically used for the two companies. (In simplified terms, if a pay package is at the 50th percentile—also sometimes referred to as the median—half the comparable pay packages are above that number and half are below; if a pay package is at the 60th percentile, 40 percent of the comparable pay packages are above that number and 60 percent are below, etc.)
[3] The top 25 consists of 47 executives (the five senior executive officers and next 20 most highly compensated employees (based on 2012 compensation) at the two companies, minus three departures since January 1, 2013). Of that total, 30 individuals were also in the 2012 “top 25,” and 17 are new members of the group. Some individual compensation packages increased, some decreased, and some remained at 2012 levels. For the individuals in the “top 25” in both 2012 and 2013, cash compensation remained the same and total direct compensation decreased 3.1 percent. For the individuals new to the “top 25” group for 2013, cash compensation decreased 59.4 percent as compared to the cash they received for 2012, and total direct compensation decreased 36.8 percent as compared to 2012.
[4] Assistant Secretary Timothy Massad’s statement on the ResCap Chapter 11 filing can be accessed at http://www.treasury.gov/connect/blog/Pages/Putting-Taxpayers-in-a-Stronger-Position-to-Continue-Recovering-Their-Investment-in-Ally-Financial.aspx.