Seventeen US financial firms paid 1.7 billion dollars in "ill-advised" bonuses to executives while being bailed out by public money at the height of the financial crisis, President Barack Obama's pay czar said Friday.
Kenneth Feinberg, the Obama administration's special master for compensation, also proposed that companies adopt a policy in which excessive salary and bonus payments were barred during financial crises.
Among firms he cited were top Wall Street banks Goldman Sachs, JPMorgan Chase, Citigroup, Morgan Stanley, Bank of New York Mellon and Wells Fargo and insurance giant AIG.
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They made the payments while receiving public bailout money during the October 2008-February 2009 period, he said.
Most of the firms cited have repaid the taxpayer aid.
They did nothing illegal as rules at that time allowed these kinds of payments, but the decision reflected "bad judgment," Feinberg said.
"It was ill-advised. This wasn't illegal," he said. "They violated no" rules but this was "bad judgment," he added.
In a report as part of his review of 419 firms that received federal bailout funds, Feinberg called on companies to adopt a key provision allowing them to set aside compensation contracts during financial crises.
Many firms had contended that they were legally obliged to provide fat payments to staff under contracts that were drawn up before the financial crisis which climaxed in late 2008 and dealt a heavy blow to the economy.
"In a crisis situation, a firm would have authority to restructure, reduce or cancel payments to executives -- and not be bound by 'guarantees,'" the report said.
Under the "entirely voluntary" proposal recommended for "wide adoption," if a company's board of directors has identified that the firm is in a crisis, its compensation committee should have the authority to review and cancel pending payments to executives.
"And this authority would supersede any rights and entitlements executives have in normal circumstances."
Feinberg made the proposal directly to the 17 firms, which were identified based on payments of bonuses, new stock grants, so-called "golden parachutes" and other types of compensation, the report said.
The pay czar will provide a set of principles "to guide" companies adopting such a compensation committee policy.
They will "provide flexibility for each firm, working with its regulator, to adopt a policy tailored to its particular business and circumstances," the report said.
Reacting to Feinberg's report, a top US financial services umbrella group said it would study his proposal.
"Financial services companies have already strengthened compensation practices to better align the long-term interests of employees with that of shareholders and consumers," said Steve Bartlett, president and CEO for the Financial Services Roundtable.
"We look forward to reviewing these recommendations to further strengthen our current practices," he said.
The roundtable represents 100 top financial services companies providing banking, insurance and investment products and services.
