Hot and latest news around the world

U.S. orders slash of executive compensation at 7 bailout firms

WASHINGTON, The Obama administration on Thursday ordered seven firms that received the most federal aid to slash their compensation to 175 highest-paid employees.

The cuts will apply to the top 25 earners at each of the seven companies, with an average cut of the total compensation this year by more than 50 percent. Meanwhile, the cash salary for affected executives will go down by an average of over 90 percent and be limited to 500,000 dollars.

Any executive seeking over 25,000 dollars in special perks, such as private planes, limos, company cars or country club memberships, would have to receive particular scrutiny, according to the decision.

The seven affected companies are Bank of America Corp., American International Group Inc., Citigroup Inc., General Motors, GMAC, Chrysler and Chrysler Financial.

The firms have received a total of about 250 billion dollars in bailout funds from the Troubled Assets Relief Program (TARP), which was approved by the Congress last year.

The decision was made by Kenneth Feinberg, the special master at Treasury appointed to handle compensation issues as part of the government’s 700 billion financial bailout package.

According to the plan, the form of the pay will be changed to align the personal interest of the executives with the longer-term financial health of the firms.

Feinberg, the so-called U.S. pay czar, will also demand a series of corporate governance changes at the companies, including splitting the chairman and CEO positions, requiring boards of directors to create “risk” committees and eliminate staggered board elections, according to the U.S. media.

Treasury Secretary Timothy Geithner highly praised Feinberg’s efforts. “Ken Feinberg has done a commendable job of applying the strong compensation standards of the Congressional legislation to the companies that received exceptional assistance from the government,” he said in a statement.

“We gave him the difficult task of cutting excessive pay, striking a balance between compensation and risk taking, and keeping strong management teams in place to help the companies recover — all in the public interest,” said Geithner.

“We all share an interest in seeing these companies return taxpayer dollars as soon as possible, and Ken today has helped bring that day a little bit closer,” he added.

U.S. President Barack Obama also praised the compensation cuts, noting that excessive executive pay has offended U.S. values and Feinberg’s decision marked an “important step forward.”

“I believe he has taken an important step forward today on curbing the influence of executive compensation on Wall Street while still allowing these companies to succeed and prosper,” Obama said at the White House.

“We don’t disparage wealth, we don’t begrudge anybody for doing well. We believe in success,” said the president. “But it does offend our values when executives of big financial firms, firms that are struggling, pay themselves huge bonuses even when they continue to rely on taxpayer assistance to stay afloat.”

Earlier on Thursday, the Federal Reserve issued a proposal to curb incentive compensation at banks to ensure they will not “undermine the safety and soundness” of their organizations.

Unlike the Treasury plan, the Fed proposal would be more aggressive, covering thousands of banks, including many that never received a bailout.

“Compensation practices at some banking organizations have led to misaligned incentives and excessive risk-taking, contributing to bank losses and financial instability,” Federal Reserve Chairman Ben S. Bernanke said in a statement.

“The Federal Reserve is working to ensure that compensation packages appropriately tie rewards to longer-term performance and do not create undue risk for the firm or the financial system,” he added.