After slashing 50% pay of the top 25 earners in October at seven firms that have received substantial support from the Troubled Asset Relief Program (TARP), the U.S. Treasury’s pay czar, Kenneth Feinberg, plans to announce a new set of pay restrictions on top executives of the companies today. The primary intention of the Pay Czar is to enable the bailed out firms to repay government money by controlling excessive pay.

The pay czar expects to put a $500,000 cap on the cash compensation for the 26th to 100th highest-paid employees at the six firms for which he still oversees employees’ compensation. The six firms whose compensation plans are still under the jurisdiction of the pay czar are Citigroup Inc. (C), American International Group Inc. (AIG), Chrysler Financial, Chrysler Group LLC, General Motors and GMAC Inc.

The pay restrictions have caused significant negative vibes within AIG, where key employees Incorporatedluding CEO Robert Benmosche, have considered leaving several times. Though Citigroup is planning to exit TARP, we don’t think it will be free from the pay czar’s scrutiny anytime soon. However, Bank of America (BAC) will be absolutely free from the pay restrictions as it has only recently repaid the $45 billion bailout money in full it had received from the TARP.

The new rules will be applicable only to the rest of Dec 2009, but will be the baseline for 2010. The rules could also scale down 2009 bonuses. However, the British government has taken far tougher steps this week, announcing a 50% tax on banker bonuses above $40,000. Goldman Sachs (GS) said on Thursday that its top executives will not receive cash bonuses for 2009.

With BofA’s payment, the total amount of TARP money repaid so far totaled $116 billion. The Treasury expects a total of $175 billion of TARP repayment by the end of 2010. The repayment of TARP money can be viewed as a sign of recovery of the institutions as well as the economy.

The Government intends to use the repaid TARP funds to create new jobs and cut the nation’s fiscal deficit. Also, the full repayment of government money will enable the bailed out firms to protect their executive compensation packages.

Zacks Investment Research

1. ($BAC) Bank of America Repays TARP Fund in FullBank of America Corporation (BAC) said on Wednesday that it has repaid the entire $45...
2. (BAC) Bank of America Slashes Top Executive PayBank of America Corporation (BAC) said on Friday that it has altered the compensation of...
3. (AIG) U.S. Treasury’s Pay Czar to Allow Competitive PayThe U.S. Treasury’s pay czar, who oversees compensation for the highest-paid employees at the firms...
4. (AIG) U.S. Treasury’s Pay Czar Limits Troubled Asset Relief Program RecipientsThe chairman of the House Oversight and Government Reform panel said on Wednesday that Congress...
5. (C) Pay Czar Seeks to Limit Salaries – Impact on Company Talent?In the course of the review of the aptness of the richest pay packages proposed...
6. (C) Bailed-Out Firms Under Pay Package ReviewThe U.S. pay czar, Kenneth Feinberg, has started a 60-day schedule to review the aptness...

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