[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
BAILOUT REWARDS: THE TREASURY DEPARTMENT'S CONTINUED APPROVAL OF
EXCESSIVE PAY FOR EXECUTIVES AT TAXPAYER-FUNDED COMPANIES
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ECONOMIC GROWTH,
JOB CREATION AND REGULATORY AFFAIRS
of the
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
FEBRUARY 26, 2013
__________
Serial No. 113-4
__________
Printed for the use of the Committee on Oversight and Government Reform
Available via the World Wide Web: http://www.fdsys.gov
http://www.house.gov/reform
U.S. GOVERNMENT PRINTING OFFICE
79-741 WASHINGTON : 2013
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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
DARRELL E. ISSA, California, Chairman
JOHN L. MICA, Florida ELIJAH E. CUMMINGS, Maryland,
MICHAEL R. TURNER, Ohio Ranking Minority Member
JOHN J. DUNCAN, JR., Tennessee CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina ELEANOR HOLMES NORTON, District of
JIM JORDAN, Ohio Columbia
JASON CHAFFETZ, Utah JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan JIM COOPER, Tennessee
PAUL A. GOSAR, Arizona GERALD E. CONNOLLY, Virginia
PATRICK MEEHAN, Pennsylvania JACKIE SPEIER, California
SCOTT DesJARLAIS, Tennessee MATTHEW A. CARTWRIGHT,
TREY GOWDY, South Carolina Pennsylvania
BLAKE FARENTHOLD, Texas MARK POCAN, Wisconsin
DOC HASTINGS, Washington TAMMY DUCKWORTH, Illinois
CYNTHIA M. LUMMIS, Wyoming DANNY K. DAVIS, Illinois
ROB WOODALL, Georgia PETER WELCH, Vermont
THOMAS MASSIE, Kentucky TONY CARDENAS, California
DOUG COLLINS, Georgia STEVEN A. HORSFORD, Nevada
MARK MEADOWS, North Carolina MICHELLE LUJAN GRISHAM, New Mexico
KERRY L. BENTIVOLIO, Michigan VACANCY
RON DeSANTIS, Florida
Lawrence J. Brady, Staff Director
John D. Cuaderes, Deputy Staff Director
Robert Borden, General Counsel
Linda A. Good, Chief Clerk
David Rapallo, Minority Staff Director
Subcommittee on Economic Growth, Job Creation and Regulatory Affairs
JIM JORDAN, Ohio, Chairman
JOHN DUNCAN, Tennessee MATTHEW A. CARTWRIGHT,
PATRICK T. McHENRY, North Carolina Pennsylvania, Ranking Minority
PAUL GOSAR, Arizona Member
PATRICK MEEHAN, Pennsylvania TAMMY DUCKWORTH, Illinois
SCOTT DesJARLAIS, Tennessee GERALD E. CONNOLLY, Virginia
DOC HASTINGS, Washington MARK POCAN, Wisconsin
CYNTHIA LUMMIS, Wyoming DANNY K. DAVIS, Illinois
DOUG COLLINS, Georgia STEVEN A. HORSFORD, Nevada
MARK MEADOWS, North Carolina
KERRY BENTIVOLIO, Michigan
RON DeSantis Florida
C O N T E N T S
----------
Page
Hearing held on February 26, 2013................................ 1
WITNESSES
The Honorable Christy Romero, Special Inspector General for the
Troubled Asset Relief Program, U.S. Department of the Treasury
Oral Statement............................................... 5
Written Statement............................................ 7
Ms. Patricia Geoghegan, Acting Special Master for TARP Executive
Compensation, U.S. Department of the Treasury
Oral Statement............................................... 28
Written Statement............................................ 30
APPENDIX
The Honorable Matthew Cartwright, a Member of Congress from the
State of Pennsylvania, Opening Statement....................... 66
Mr. Kenneth R. Feinberg, Author, Who Gets What, Fair Compensation
After Tragedy and Financial Upheaval........................... 68
BAILOUT REWARDS: THE TREASURY DEPARTMENT'S CONTINUED APPROVAL OF
EXCESSIVE PAY FOR EXECUTIVES AT TAXPAYER-FUNDED COMPANIES
----------
Tuesday, February 26, 2013,
House of Representatives,
Subcommittee on Economic Growth, Job Creation &
Regulatory Affairs,
Committee on Oversight and Government Reform,
Washington, D.C.
The subcommittee met, pursuant to call, at 10:05 a.m., in
Room 2154, Rayburn House Office Building, Hon. Jim Jordan
[chairman of the subcommittee] presiding.
Present: Representatives Jordan, McHenry, Lummis, Collins,
Meadows, Bentivolio, DeSantis, Cartwright, Connolly, Pocan,
Davis and Horsford.
Also Present: Representative Issa.
Staff Present: Ali Ahmad, Majority Communications Advisor;
Alexia Ardolina, Majority Assistant Clerk; David Brewer,
Majority Counsel; Caitlin Carroll, Majority Deputy Press
Secretary; Katelyn E. Christ, Majority Professional Staff
Member; John Cuaderes, Majority Deputy Staff Director; Linda
Good, Majority Chief Clerk; Tyler Grimm, Majority Professional
Staff Member; Christopher Hixon, Majority Deputy Chief Counsel,
Oversight; Scott Schmidt, Majority Deputy Director of Digital
Strategy; Rebecca Watkins, Majority Deputy Director of
Communications; Jedd Bellman, Minority Counsel; Jaron Bourke,
Minority Director of Administration; Devon Hill, Minority
Research Assistant; Jennifer Hoffman, Minority Press Secretary;
Jason Powell, Minority Senior Counsel; and Brian Quinn,
Minority Counsel.
Mr. Jordan. All right, the subcommittee will come to order.
Today's hearing is on the Treasury Department's continued
approval of excessive pay for executives at companies that are
currently being funded by the taxpayer.
I want to welcome our witnesses today. Thank you for being
here. As I mentioned to you just a few minutes ago, we will try
to be done by noon; hopefully a little earlier, if we can. But
it is an important hearing and you have to listen to us give a
few statements before you get to talk; it is just sort of the
way this thing goes. So I will do an opening statement, then
the gentleman from Pennsylvania, Mr. Cartwright, will do his,
and then we will hear from you all. You get five minutes to
give your testimony and then we will get right into questions.
Today's hearing is about understanding why the Treasury
Department continues to abdicate its responsibility to
taxpayers, breaking a firm promise our President, President
Obama, made to the American people.
In 2009, when it was discovered that executives at bailed-
out firms were enriching themselves on the backs of taxpayer
support, the President went on national television and stated
that these actions were the height of irresponsibility and
declared them shameful. He said he would not tolerate it as
President.
To remedy the situation, he promised top executives at
firms receiving extraordinary help from U.S. taxpayers will
have their compensation capped at half a million dollars, a
fraction of the salaries that they had been reported.
The person currently in charge of enforcing these
restrictions is with us today, Ms. Patricia Geoghegan. She is
the Acting Special Master for TARP Executive Compensation and
is responsible for approving compensation at firms that have
been given extraordinary assistance from the Federal
Government.
The latest audit from the special inspector general for
TARP shows that compensation for executives at bailed-out firms
is egregiously out of line with what the President committed to
the American people.
Of the 69 executives for whom Special Master Geoghegan had
responsibility to approve compensation, all but one received
pay of $1 million. In fact, 16 of these executives were paid
over $5 million.
We are here today to fulfill the committee's mission of
bringing transparency and accountability to the American
people.
Treasury's failure to protect taxpayers is part of a
disturbing pattern in which this Administration makes promises
to the public, but then does not live up to them. We saw it
with the stimulus; we were promised unemployment would never
exceed 8 percent, and it exceeded 10 percent. We saw it with
ObamaCare; the President said premiums would go down, and they
have gone up.
When the President's promises do not materialize, he and
his administration simply stick their heads in the ground and
offer little to the American people by way of answers.
Hopefully, this morning, Special Master Geoghegan can explain
to us how things got so out of control and provide a plan to
correct executive compensation for firms that continue to
operate with taxpayer support.
With that, I would yield to the gentleman from Pennsylvania
for his opening statement.
Mr. Cartwright. Thank you, Mr. Chairman.
I would like to thank our witnesses for appearing before
the committee today. I look forward to hearing your testimony
on the executive compensation at companies that received
exceptional taxpayer assistance during the Government's
response to the 2008 financial crisis.
Like most Americans, I was troubled to learn how the
structure of compensation packages on Wall Street helped to
create incentives for taking the unnecessary and excessive
risks that led to the financial crisis in the first place. Too
often, executives received huge cash salaries, discretionary
raises, exorbitant bonuses, and golden parachutes, with little
to no reason to care about their behavior's effect on the long-
term consequences to the company and the Country because their
compensation wasn't tied to the long-term health of the
company.
With the economy collapsing, the taxpayers bailed out these
companies; not because we wanted to, but because we had to.
Millions of middle class jobs, blue collar manufacturing jobs
would have been gone; millions of people out of work through no
fault of their own, just because a bunch of traders on Wall
Street didn't feel the need to think about the long-term
consequences of their actions.
This was hard to stomach when the taxpayers, who saved
these companies, are often struggling themselves to make ends
meet. But it was a necessary thing to do and the right thing to
do to save the jobs of millions of innocent, middle class
people who had nothing to do with causing that financial crisis
in the first place.
With these bailouts came conditions, and rightly so. One of
the many conditions was that the Treasury Department would
appoint someone to oversee executive compensation at these
companies. This compensation was to be structured in a way that
would incentivize long-term growth over risk taking and
personal gain and, most importantly, get these companies back
on their feet again by attracting and retaining quality
employees that would keep these jobs safe so that they were
able to pay back the taxpayers as quickly as possible.
TARP has been, overall, a success story. According to the
Treasury Department, as of January 31, 2013, Treasury has
recovered all or substantially all of TARP funds disbursed to
date. Four of the seven companies we are talking about today,
who received the most TARP funds, have already paid us back and
exited the program.
Now, I would like to point out here a great irony that we
will see in this room today. The same people who argued that
they would rather have gone over the fiscal cliff because a 4.6
percent increase in taxes on the wealthiest 0.7 percent in our
Nation would destroy the economy are the same people who are
now saying that these specific 0.7 percenters are making too
much money.
Now, I know we will be getting into the minutiae today, and
I welcome that discussion; however, it is important to
recognize the big picture here. We held our noses; we bailed
out these companies so that millions of middle class jobs
wouldn't be lost. This program was an overall success and
millions of people are employed in this Country who otherwise
wouldn't have been.
I thank the chairman for calling this hearing and I look
forward to a productive dialogue on these issues. I yield.
Mr. Jordan. I thank the gentleman.
I would just point out that this hearing is about following
the law and about an administration keeping their word. They
told us one thing. In fact, we are going to play what the
President said. We have statements they said they were going to
limit compensation, that it would be the rare and it would be
the exception for executives who were receiving taxpayer
dollars to go above half a million dollars in compensation, and
it has been anything but that.
So this is about following the law and having this
administration do exactly what they told the American taxpayers
they were going to do when the American taxpayers ponied up the
money for these various companies.
With that, I would yield to the chairman of the full
committee, the gentleman from California.
Mr. Issa. Thank you, Mr. Chairman. I will be very, very
brief.
I think the ranking member will recognize that in this
particular case we agree on what excess compensation is, and
perhaps for a reason that you didn't note. To quote President
Barack Obama, if you have a business, you didn't build that;
somebody else made that happen. Now, that quote doesn't ring
particularly true to me as an entrepreneur and a job creator,
but it rings very true when it comes to General Motors and
other companies who still owe us their very existence, their
very existence depending upon the federal relief, a bailout for
which, in the case of General Motors, we are still about $20
billion upside down. And I repeat, you don't take a bonus when,
in fact, your investors are in the negative.
That is what we are talking about here today. I think that
is exactly where we have to be. And I note that the chairman
and ranking member together noted that not every company that
is on this excess compensation list fits that bill, and I hope
that we will concentrate on companies who were not able to exit
TARP because, in fact, they have not paid us back. Once they
exit TARP, I am one of those people who believes that it is up
to the board of directors and stockholders to determine
compensation, and I really am willing to support whatever they
support as the owners of the company. But today America is a
major owner of the company and, ultimately, without the United
States Treasury there would be no General Motors and several
other companies.
With that, Mr. Chairman, I thank you for that opportunity.
Mr. Jordan. Thank you.
Is there anyone else on the committee wishing to make an
opening statement?
[No response.]
Mr. Jordan. All right, members have seven days to submit
opening statements for the record.
We will now recognize our panel. We are pleased to have
with us the Honorable Christy Romero, who is the Special
Inspector General for the Troubled Asset Relief Program, and
Ms. Patricia Geoghegan, who is Acting Special Master for TARP
Executive Compensation.
Ladies, I need you to stand up. Raise your right hand.
Do you solemnly swear or affirm that the testimony you are
about to give will be the truth, the whole truth, and nothing
but the truth?
[Witnesses respond in the affirmative.]
Mr. Jordan. Let the record show that the witnesses answered
in the affirmative.
And we will just start with Ms. Romero. You will be given
five minutes, more or less, and then we will go right to Ms.
Geoghegan.
Ms. Romero, again, thank you for being here and you are
recognized for your five minutes.
WITNESS STATEMENTS
STATEMENT OF THE HONORABLE CHRISTY ROMERO
Ms. Romero. Chairman Jordan, Ranking Member Cartwright,
Chairman Issa, members of the committee, it is my honor to
present SIGTARP's report. I thank the committee for bringing
transparency and oversight to this use of taxpayer dollars.
Executive compensation did play a material role in causing
the financial crisis. Pay was not tied to long-term
performance; employees took too much risk in the short-term,
and eventually that caught up with them. The companies would
have failed, but taxpayers saved them with a bailout. Taxpayers
stepped up because we were told that the entire economy would
collapse. The bailout was supposed to protect taxpayers, not
line the pockets of executives.
After TARP companies paid huge bonuses, the President
announced reforms for seven companies receiving extraordinary
bailouts. Executive compensation would be capped at $500,000,
with anything additional paid in stock that can't be cashed
until taxpayers are repaid. Treasury's Office of the Special
Master determines each person's pay within the top 25 employees
at these companies under six Treasury principles that are
vague, conflicting, and so broad that almost any pay could be
justified.
Former Special Master Feinberg developed guidelines in the
public's interest to balance the conflicting principles, give
incentives to repay, and address mistakes of the past, and he
testified before Congress that they were: first, ``pay should
generally not exceed the 50th percentile,`` meaning pay that is
right in the middle; second, ``cash salaries should rarely
exceed $500,000 and should be, in many cases, well under'';
and, third, incentive pay should be tied to long-term
performance metrics and only cashed out as TARP is repaid.
SIGTARP found in our first report that the special master
reduced pay from pre-bailout times, but approved pay worth
millions. The special master lacked strong criteria policies
and procedures to apply its guidelines, and ended up making
many exceptions when companies pushed back, claiming they were
unique and needed the pay for retention. That is the same
argument that Fannie and Freddie made.
In 2012 we did a followup. We found that Treasury made no
meaningful reforms on our recommendations. Treasury approved
excessive pay at AIG, GM, and Ally that exceeded its own
guidelines, chipping away at the important changes that Mr.
Feinberg had made, largely based on what the companies wanted.
Every employee except one was paid $1 million; many were paid
much more. Half were paid $3 million or more; one quarter were
paid $5 million or more. Treasury approved two-thirds of these
employees to be paid above the 50th percentile, meaning they
got pay not at the middle of the pack, but above that.
The companies wanted raises for 18 employees, and that is
what they got, ranging from $30,000 to a $1 million pay raise.
There was no criteria for who would get a raise. Employees got
raises at companies with profits, companies with losses, and
even a company in bankruptcy. There was no criteria for who
would be paid cash salaries over $500,000. Seventy percent were
paid cash of $500,000 or more; 94 percent were paid $450,000 or
more in cash. For half of the employees, Treasury removed long-
term restricted stock, removing pay that is tied to individual
performance and that gives the employee a personal stake in the
company repaying TARP.
Treasury claims they are not bound by their guidelines, but
we found too many exceptions to the guidelines to make the
guidelines meaningful. Treasury has to be held to the standards
they create and under which they make decisions. It is
necessary for transparency, consistency, and oversight.
It should be a bare minimum to reduce pay from the
ridiculous, out of control pre-bailout pay. The question is not
how much should these employees be paid if it was business as
usual. It is not business as usual; taxpayers own part of these
companies. The question is what is the appropriate size of pay
given the taxpayer ownership and how should that pay be
structured to avoid repeating the mistakes of the past.
Mr. Feinberg said that the answer was in his guidelines. If
Treasury does not follow the guidelines, taxpayers will
subsidize excessive pay and Treasury risks turning back the
clock to the compensation that contributed to the financial
crisis.
Thank you again, and I am happy to answer any questions.
[Prepared statement of Ms. Romero follows:]
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Mr. Jordan. Thank you, Ms. Romero. We appreciate that.
Ms. Geoghegan, you are recognized for five minutes.
STATEMENT OF PATRICIA GEOGHEGAN
Ms. Geoghegan. Chairman Jordan, Ranking Member Cartwright,
Chairman Issa, and members of the subcommittee, I thank you for
the opportunity to testify today on this important topic. My
name is Patricia Geoghegan and I serve as the Acting Special
Master for TARP Executive Compensation.
In the fall of 2008 our economy stood at the brink. The
financial institutions and markets that Americans rely on to
protect our savings, finance our homes and college educations,
and fund our businesses were threatened as at no time since the
Great Depression.
Congress acted by passing the Emergency Economic
Stabilization Act, which created TARP and included important
restrictions on executive compensation at businesses that
received TARP assistance. Those restrictions were designed to
ensure that compensation of top executives was aligned not only
with the interests of shareholders, but also with the interests
of taxpayers in preventing excessive risk-taking and in
recovering TARP assistance.
Treasury acted quickly to implement these restrictions
through a regulation that, among other things, created the
Office of the Special Master. Established in June 2009 under
the leadership of Kenneth Feinberg, the responsibility of the
office is, each year, to review and either approve or modify
the pay packages proposed for the top 25 employees of the seven
companies that had received exceptional assistance under TARP.
The special master has no jurisdiction to review pay packages
at any other companies. All our determination letters are
available publicly on our Web site.
As Mr. Feinberg noted almost four years ago before the full
committee, the office has worked to achieve a balance between
limiting compensation, while at the same time keeping pay at
levels that enable the exceptional assistance companies to
remain competitive and repay taxpayers. The regulation makes
clear that we must consider market forces in determining pay
levels.
In implementing the regulation, we established a number of
guidelines that were the foundation of the initial
determinations. These guidelines are not rigid formulas. Each
pay determination requires the exercise of discretion and
judgment that takes into account the specific facts and
circumstances of each company and each employee. A careful look
at our record shows that the office has struck an appropriate
balance. Pay has been cut and taxpayers are being repaid.
Starting in 2009, we cut average cash pay for the top 25
executives at the seven companies by more than 90 percent and
average total pay by more than 50 percent. Taken together, the
original seven companies under the jurisdiction of the special
master have returned the $352 billion in total assistance
provided plus an additional positive return to date of more
than $6 billion.
For the 2012 determinations we followed the same guidelines
established by Mr. Feinberg in 2009. We continue to review and
evaluate market data to make sure that pay does not exceed the
levels paid for similar positions at similar companies.
In 2012, AIG's average pay packages for its top 25
employees were at the 48th percentile compared to similar
positions at similar companies. GM's were at the 50th
percentile and Ally Financial's were midway between the 50th
and the 75th percentiles.
We continue to require that most pay be in the form of
stock, the ultimate value of which will reflect the performance
of the company. Ninety-four percent of the pay packages we
approved in 2012 contained a majority of stock, rather than
cash, up from 74 percent in 2010. We continue to limit cash
salary. In 2012, the average total cash pay approved for AIG,
GM, and Ally Financial was 63 percent lower than the median for
total cash pay for similar positions at similar companies. We
continue to require that incentive pay be awarded only on the
achievement of pre-established performance goals and we
continue to limit perks.
Today, TARP is in wind-down. In December 2012, AIG exited
TARP. Thus, only two companies, GM and Ally Financial, remain
under the jurisdiction of the office, and for these companies
we will continue to follow the framework and guidelines we have
used for the 2009 through 2012 determinations until they have
exited TARP.
Thank you, and I welcome your questions.
[Prepared statement of Ms. Geoghegan follows:]
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Mr. Jordan. Thank you, Ms. Geoghegan.
I will now turn to the gentleman from California for five
minutes.
Mr. Issa. I appreciate that.
Would you play the short video?
[Video shown.]
Mr. Issa. Ms. Geoghegan, did you fully live up to the words
the President said in that speech?
Ms. Geoghegan. Chairman Issa, if you recall, after the
President's speech, Congress amended EESA.
Mr. Issa. Okay, and since my name is normally pronounced
Essa, I will interrupt at this moment.
I agree; the statute does not exactly match the President's
statement. So let's get into what the statute is supposed to
do. You are authorized to provide such compensation. And I have
done executive compensation actually greater than the $10
million that we are talking about for the top. You are
authorized to get them, effectively, to the median, but you are
also required to have a deferral. They are not allowed to
receive it all in cash. Is that essentially what a layperson
would think about the law relative to GM and the old GMAC,
which is the only two entities we are talking about really here
today?
Ms. Geoghegan. Chairman Issa, I agree. Our two main
guidelines would be to make sure that the compensation does not
exceed the levels paid for similar positions at similar
companies, on the one hand, and we want to make sure that most
of the compensation is in the form of stock so that it is paid
over time and reflects the performance of the company over time
so that the executives are not encouraged to look at short-term
results and are not encouraged to take excessive risks.
Mr. Issa. And if you are an executive making $500,000, $1
million, $2 million, the truth is it is not a negative, it is a
positive, to receive your compensation on a deferred basis,
correct? In other words, companies routinely do not pay their
top executives in large amounts of cash; just the opposite,
executives typically want a deferred compensation package, and
many of the compensation that top executives get are in non-
cash deferred systems, including their pensions and so on.
Isn't that true?
Ms. Geoghegan. Chairman Issa, that is correct. In our case,
however, the cash portion of the packages is a much smaller
portion than is normal for similar positions at similar
companies.
Mr. Issa. I took the opportunity to look at General Motors'
chief competitor, Ford. And when you look at Ford, it
outperformed GM. When you look at the total compensation, I
found it to be substantially similar. The difference is Ford
has much lower debt, owes the Government nothing, is in fact,
competing against General Motors, who got a bailout, isn't that
correct?
Ms. Geoghegan. Generally speaking, I believe that you are
correct in describing their compensation.
Mr. Issa. And because America chose, or the Treasury chose
to have a substantial portion of that bailout in stock, it is
particularly significant because it doesn't appear as debt on
the balance sheet but, rather, stock that is currently under
water by about $20 billion, right? More or less.
Ms. Geoghegan. The stock that we own at current market
prices is not sufficient for GM to repay us fully, that is
correct.
Mr. Issa. Well, let's understand something. General Motors
is a public company, so we have lost that much money. If we
take that money and we sell it and we put it into Apple or we
put it into gold futures or anything else, we may or may not
make money. The truth is, today, we have lost that much money,
and the only way we get it back is through stock appreciation,
correct?
Ms. Geoghegan. It is true that the only way we will get the
remaining investment in GM is through the value of our stock,
that is correct, Chairman Issa.
Mr. Issa. Okay. Now, I have sat on the board of a public
company, even as a member of Congress, and I am very sensitive
to what moves the value of stock. Since your compensation
package was deferred almost not at all. In other words, they
vest in three year increments; a third, a third, and a third.
Can you sit here today and tell the rest of us, who do not
always deal in these kinds of things, that they are really
linked to the long-term future? Long-term future is next year,
the year after, and the year after, long-term; or is in fact
three years three years after the bailout, or six years after
the bailout, nearly. Is it in fact long-term or are we dealing
with a relatively short horizon, one in which the CEO, for
example, is likely to still be the CEO or barely exiting?
That is the question I really have for you here today. It
is not the total compensation, which I have some concerns about
whether it is fair based on their performance relative to their
peer who didn't have the assistance. But even if it was
reasonable, why wouldn't that compensation, the so-called TARP
stock, be more linked to us getting out of the red on that very
stock?
Ms. Geoghegan. Chairman Issa, the task that the Office of
the Special Master has under the law is to achieve a balance
between limiting compensation on the----
Mr. Issa. Well, my time has expired, but maybe because you
are not exactly answering the question, if you could simply say
did you have the authority to go beyond a third, a third, and a
third? Not could you exercise it, did you choose to, but did
you have the authority to have their compensation further out
and more linked to the long-term performance than you did?
Ms. Geoghegan. Chairman Issa, we did select three years as
the appropriate long-term measure.
Mr. Issa. I appreciate that you selected it.
Mr. Chairman and ranking member, if you would give me a
little indulgence.
Did you have the authority to have their compensation more
linked to where the company would be when it exits us being on
the hook and upside down and currently having lost, potentially
forever, our investment, did you have the authority to make it
longer than essentially a third of it maturing in one year?
Ms. Geoghegan. Chairman Issa, we could have made it longer
and we could have made it shorter, you are correct.
Mr. Issa. Okay. Mr. Chairman, ranking member, hopefully I
have set the stage a little bit. One of my concerns today is
exercise of authority, was it reasonable. Thank you. I yield
back.
Mr. Jordan. Thank you.
The gentleman from Pennsylvania is recognized for five
minutes.
Mr. Cartwright. Thank you, Mr. Chairman.
Now, one thing that we have been doing so far is referring
liberally to the statements and opinions of Mr. Kenneth
Feinberg, and one thing I would like to do, since a lot of
those statements and opinions were made, he came out with a
book, called Who Gets What: Fair Compensation After Tragedy and
Financial Upheaval, in 2012, and I would like to submit for the
record not the entire book, Mr. Chairman, but chapter chapter 5
of that book, which runs from pages 85 through 123.
Mr. Jordan. We too have a budget.
Without objection.
Mr. Cartwright. Thank you.
Now, Ms. Romero, I want to thank you for your work and your
testimony today. I appreciate the work that SIGTARP does.
Ms. Geoghegan, I also want to thank you for your work and
your testimony.
Now, Congress required that Treasury prohibit bonus
payments and retention awards for companies receiving
exceptional assistance under TARP. Ms. Romero, do you have any
indication at this point that Treasury failed to do that?
Ms. Romero. So the cuts that Ms. Geoghegan was referring to
in her earlier testimony, there were definitely cuts made in
2009 from the pre-bailout time. Much of that cut actually comes
from Congress prohibiting those cash bonuses and that
compensation.
Mr. Cartwright. Thank you. Thank you.
Now, Ms. Geoghegan, have you done that, have you prohibited
bonus payments and retention awards?
Ms. Geoghegan. The statute has a small--has the opportunity
to provide for incentive compensation up to one-third of the
total package, and it is only permitted in the form of long-
term restricted stock.
Mr. Cartwright. As you said.
Ms. Geoghegan. And we do permit long-term restricted stock
strictly in accordance with what the statute permits.
Mr. Cartwright. All right. Congress also required that
Treasury prohibit golden parachutes, or exorbitant departure
payments, to senior executives. Ms. Geoghegan, have you done
that?
Ms. Geoghegan. Yes. Golden parachutes are prohibited for
the top 10 executives at all TARP recipients.
Mr. Cartwright. Okay.
And back to you, Ms. Romero. Do you have any indication
that Treasury has failed to do that?
Ms. Romero. Golden parachutes? No.
Mr. Cartwright. Okay.
Now, in the statute, despite whatever video clips we want
to show people, Congress did not include a specific dollar
limit to impose on individual executives.
Now, Ms. Geoghegan, tell us what considerations are you
required to weigh under the law?
Ms. Geoghegan. Under the law, the specific principle in the
Treasury regulations, Congressman Cartwright, states that
compensation should be consistent with, and not excessive,
taking into account amounts paid for similar positions at
similar companies.
Mr. Cartwright. Well, I think it is fairly clear that
Treasury has upheld the law that Congress passed on limiting
executive compensation of companies receiving assistance from
TARP. Still, the SIGTARP report calls into question the
decisions the special master made when approving or modifying
executive compensation.
Ms. Geoghegan, how do you evaluate executive compensation
proposals from the companies that you oversee? Do you look at
data; do you conduct interviews?
Ms. Geoghegan. In performing our task of the balance
between limiting compensation and making sure that the
companies have sufficient pay to remain competitive and to
repay taxpayers, we look at a lot of information. We gather an
enormous amount of market data. We have on-staff executive
professionals who have years of experience in the area,
executive compensation professionals who have years of
experience in the area, and they help us evaluate the market
data, gather it, and decide where the pay proposals that the
companies have given us fall within that range.
Mr. Cartwright. Okay.
Ms. Geoghegan. By no means do we approve every compensation
package that is put in front of us.
Mr. Cartwright. I understand that. My last question is when
considering a company's proposal to pay an individual executive
cash salary in excess of $500,000, which is allowed under your
office's guidelines for ``good cause,'' what analysis does the
Office of Special Master conduct to determine whether or not
there is in fact good cause?
Ms. Geoghegan. Congressman Cartwright, we look at the facts
and circumstances of the company and of the individual; we look
at that individual's responsibilities; we look at where the
cash salary of that individual falls, comparing it to amounts
paid for similar positions at similar companies; and, in fact,
in our 2012 pay packages, our total cash for the pay packages
that we approved was, overall, 63 percent lower than median for
similar positions at similar companies. So we have definitely
followed our guideline of restricting cash pay.
Mr. Cartwright. Thank you, Ms. Geoghegan. My time is up.
Mr. Jordan. I thank the gentleman.
I recognize the gentleman from Michigan for five minutes,
Mr. Bentivolio.
Mr. Bentivolio. Chairman Jordan, Ranking Member Cartwright,
thank you for holding this important hearing. Billions of
dollars of taxpayer money have been used to bail out companies
that were failing largely due to their own poor decisions.
Taxpayer money should not be used to enrich the executives of
these companies.
I remember a long time ago a teacher told me that I don't
care how talented you are, how smart you are, there is always
somebody a little bit better, and our importance to any
organization is directly proportionate to the hole you leave
when you take your hand out of a bucket of water.
What I don't understand is how we can do this, reward
people for failure.
But my question is for Ms. Romero. SIGTARP has admitted
that increased moral hazard had been a byproduct of TARP. Thus
far, the Dodd-Frank Act has also failed to have solved the
perception problem that the markets expect large institutions
to receive government support if they falter.
By accepting company requests for salaries above prescribed
limits, the Office of the Special Master has set a precedent
that may encourage future companies to seek bailouts. Does
SIGTARP believe that increased moral hazard is a byproduct of a
bailout?
Ms. Romero. Absolutely.
Mr. Bentivolio. By relinquishing its pay-setting
authorities to bailed out companies, do you think Treasury has
potentially incentivized other companies to seek bailouts in
the future?
Ms. Romero. Absolutely, even the companies who are still
in. It shouldn't be comfortable or luxurious to be in TARP; you
want it to be uncomfortable so there is an incentive to get out
and to never ask to get back in again.
Mr. Bentivolio. Is it true, as noted in footnote 4 of your
recent audit, that Citicorp and Bank of America exited TARP so
quickly in part not to have to follow OSM's pay restrictions?
Ms. Romero. Yes.
Mr. Bentivolio. In your opinion, what does this entire
experience say about the Federal Government's involvement in
making pay decisions for private companies?
Ms. Romero. Well, I think whether it is required by law or
rule, Treasury didn't actually implement TARP through law. For
example, there is nothing in any law or any Treasury rule
related to Treasury's standards it follows for cash injections
in banks, which is most of TARP. So when Treasury sets
guidelines, they have to follow them; and the guidelines are
really important here. The guidelines actually protect the
public; and without them the balance shifts to what the
companies want, and that is very dangerous.
Mr. Bentivolio. Thank you very much.
Mr. Chairman, I yield back my time.
Mr. Jordan. I thank the gentleman.
All right. The gentleman, Mr. Davis, is recognized for five
minutes.
Mr. Davis. Thank you very much, Mr. Chairman, and I want to
thank you for calling this hearing.
I also want to thank our witnesses for coming and for
sharing their expressions with us.
Like many of my colleagues, in several instances I voted to
help find a solution and a direction to what I considered to be
a very serious financial crisis that we were facing, and the
seriousness that some of our companies were having difficulty
making it. I am also pleased that when we look at what has been
the success of some of them, where they were able to turn
around their businesses.
But like many Americans, I didn't vote to line the pockets
of any executives or to provide bonuses where it didn't appear
to me that bonuses were warranted.
So just to try and make sure that my assessment is fair,
when I look at your efforts to limit executive compensation,
while also considering the ability of TARP recipients to
perform as stable enterprises, let me ask you, Ms. Geoghegan,
in a letter received by the committee just this morning, the
former TARP special master, Ken Feinberg, wrote, ``The market
and economy have changed since the Office of the Special Master
was established. The instability of the market and the economic
recession posed particular problems for the special master when
it came to calculating compensation in individual cases. Today
the market and Wall Street-related competitive compensation are
much different than they were when I was the special master.
Wall Street-related executive compensation has increased since
2009. Accordingly, compensation decisions made by the special
master must take into account this fact in making individual
compensation decisions that will assure ongoing competitiveness
in the marketplace. The initial pay prescriptions promulgated
during my tenure may still be valid and credible, but waivers
and exceptions are to be more frequent and expected in light of
changing markets.''
Would you respond to that statement, or would you agree?
Ms. Geoghegan. Congressman Davis, thank you for the
opportunity to address that statement. I certainly would, in
general, agree with what my predecessor, Ken Feinberg, says
about current compensation. Nevertheless, the Office of the
Special Master adheres very closely to the same principles we
have always followed and our guidelines.
We believe that we are following all the guidelines that
were initially established, and we don't believe that we have
issued additional waivers or have increased, in general, the
level of compensation. We have looked to make sure that the
compensation is consistent with market practice; we have
limited cash; we have made sure that incentive compensation is
awarded only on the basis of pre-established performance goals;
and we have made sure that all the packages, as many as we can
get, are mainly in the form of stock. In fact, 94 percent of
our pay packages in 2012 were majority stock, up from 74
percent in 2010.
So while I appreciate Mr. Feinberg's view on the economy as
a whole and where Wall Street compensation has gone, the fact
is that we have remained extremely careful in limiting
compensation. That is the balance we have to achieve. We limit
compensation while, at the same time, permitting the companies
to have pay levels that will keep them competitive so that they
can succeed. And I don't believe that we should think about the
companies as if they are failing; these companies are
succeeding.
Mr. Davis. Thank you very much.
And thank you, Mr. Chairman. I yield back.
Mr. Jordan. I thank the gentleman.
Ms. Romero, when Mr. Bentivolio was asking his questions,
he talked about the moral hazard, and you mentioned
uncomfortable, we should make these companies feel
uncomfortable so that there is not this incentive to take
taxpayer money. How many pay packages did the special master
look at last year?
Ms. Romero. Sixty-nine.
Mr. Jordan. Sixty-nine. And the way it works, the companies
send those, they send in what they would like to pay their
executives and then Ms. Geoghegan gives it the thumbs up or the
thumbs down. How many of those 69 did the special master turn
down?
Ms. Romero. Not that many. I mean, what we found was the
pay that they got was largely based on what they had----
Mr. Jordan. So 69 executives asked to pay a certain amount
and they didn't change any of them?
Ms. Romero. I think they made some changes, but they gave
18 of 18 pay raises that were requested, $30,000 to $1,000,000
without, I mean, look at these pay raises. Only four of them
are under $100,000. You see like $650,000 pay raise, $200,000
pay raise, even where the company is taking a loss; $100,000
pay raise.
Mr. Jordan. So not exactly making these guys sweat, right?
Ms. Romero. No.
Mr. Jordan. And I read through your testimony last night.
At some point I have to ask, do you feel like you are pulling
your hair out? I saw on page 9 you talk about despite SIGTARP's
January 2012 report identifying serious concerns with the
special master's pay-setting process, Treasury continued to use
the same process for setting 2012 pay without significant
change. Then you said on the next page, SIGTARP previously
warned that Treasury lacked robust criteria, policies, and
procedures to ensure these guidelines are met. Treasury made no
meaningful reform to its processes.
Then I look at page 12: Treasury did not establish any
meaningful criteria for having good cause to award cash
salaries greater than half a million dollars. Page 18, finally,
you said, the second report by SIGTARP to warn the Office of
Special Master after four years still does not have robust
policies, procedures, or criteria to ensure that for executives
at TARP exceptional assistance companies stays within the OSM
guidelines.
So how many times do you have to tell them put in place
some policies that actually make some sense?
Ms. Romero. That is why this hearing is so important. We
talk about, say on pay. The taxpayers get a say on pay, too. If
we own part of the company, we speak through the special
master.
Mr. Jordan. And I think even in your opening remarks, I
jotted this down, you said they haven't even held to the
standards they created. So it is not only they need better
policies, but what policies they do have, they haven't even
followed those in the course of this process. Is that correct?
Ms. Romero. That is correct.
Mr. Jordan. Now, Ms. Geoghegan, you cite in 2009 you
actually had the executives, you cut their pay. Well, of course
you cut their pay; that is the year they got all the money.
That is the year they come to the taxpayers, hat in hand,
saying we need money. Well, I hope their pay was cut then; they
were living off the taxpayers then. So to use that as the
standard for, well, we have made these folks uncomfortable, I
would argue it is a lot less about what happened in 2009 and
what has happened since 2009.
And since 2009, if my numbers are correct, Mr. Feinberg, in
2009, only approved executive pay compensation above half a
million for six, at that point we had seven companies in the
program, and I think when he approved six of those, we were
focusing on five companies who were in the exceptional
assistance category. Only six of those individuals received pay
above half a million.
Today what is that number, Ms. Geoghegan?
Ms. Geoghegan. In 2012, Chairman Jordan, 23 individuals----
Mr. Jordan. Wait, wait, wait. So it went from 6 to 23?
Ms. Geoghegan. Well, in 2012 we approved one additional pay
package over the amount----
Mr. Jordan. No, no, no, no. In 2009 it was six, right?
Ms. Geoghegan. That is correct.
Mr. Jordan. Yes. And how many companies were you looking at
in 2009?
Ms. Geoghegan. In 2009 it was seven companies.
Mr. Jordan. All right. And today how many executive pay
packages are above half a million? Twenty-three?
Ms. Geoghegan. In our 2012 determinations there are 23
above $500,000 cash salaries, which is one more than the amount
if 2011 and one more than the amount in 2010.
Mr. Jordan. But I am going from where we started. 2009, six
above half a million. And today it is how many?
Ms. Geoghegan. Today it is 23.
Mr. Jordan. Okay. And how many companies were you
evaluating in 2009?
Ms. Geoghegan. In 2009 there were seven.
Mr. Jordan. And how many companies are you evaluating
today?
Ms. Geoghegan. In 2012 we evaluated three companies.
Mr. Jordan. So only six above half a million in 2009, when
you were looking at seven companies. That is 25 executives that
you can look at at each companies, and only six out of all
seven of those companies. And today, when you have three
companies, you have 23.
Let me ask, the one company, I think I am correct with
ResCap, the one company has gone bankrupt, is that right? Have
they filed for bankruptcy?
Ms. Geoghegan. Chairman Jordan, I want to clarify one
point.
Mr. Jordan. Have they filed for bankruptcy?
Ms. Geoghegan. Ally Financial has not filed for bankruptcy.
Mr. Jordan. ResCap?
Ms. Geoghegan. They have a mortgage subsidiary as one of
their strategic steps in make--our investment in Ally Financial
is----
Mr. Jordan. Has ResCap filed for bankruptcy?
Ms. Geoghegan. They have done a Chapter 11 proceeding.
Mr. Jordan. And is the head of ResCap, Mr. Merino, is he
one of those 23 receiving compensation over half a million
dollars?
Ms. Geoghegan. Cash salary? I am afraid, Chairman Jordan, I
don't feel that I can address specific pay packages for
specific individuals.
Mr. Jordan. We have that information. It says he is. It
says he is one of the 23. So here is what the taxpayer sees,
and think about it in the context of what Ms. Romero said; we
want to make this uncomfortable because we have taxpayer money
at risk. So in 2009, six executives, when you are looking at
seven different companies, received pay above half a million
dollars. Today you are looking at three companies and you have
23 executives receiving pay above that threshold, and one of
those individuals at one of those companies, ResCap, is going
bankrupt, and yet he is still one of the 23.
Do you think the taxpayers are a little nervous about that?
And back to Ms. Romero's point, do you think that is making
these folks uncomfortable?
Ms. Geoghegan. Chairman Jordan, I understand that the
American people----
Mr. Jordan. And when you look at the pattern of 69 folks
you evaluate and you didn't turn down any of them, basically
you take what the company tells you. They offer, here is what
we would like to pay our executives, all that, that is fine;
check the box, that is fine.
Ms. Geoghegan. Chairman Jordan, by no means do we approve
every pay package that is put in front of us. We have turned
down many proposals.
Mr. Jordan. How many of those 69 did you turn down last
year?
Ms. Geoghegan. In our packages for last year, we required
many increases in long-term restricted stock. We denied
virtually every request for increased cash salary last year.
AIG did not ask for any net increase in compensation; AIG asked
for a new decrease in compensation.
Mr. Jordan. Okay.
Ms. Geoghegan. Their pay proposals, their one raise that
they requested was more than offset by the pay decreases that
they proposed for other people.
Mr. Jordan. But this year AIG is not still in the program.
My time has expired. I now go to, I believe, the gentleman
from Virginia, and then we go next to the gentleman from North
Carolina.
Mr. Connolly.
Mr. Connolly. Thank you, Mr. Chairman.
Welcome to both of our witnesses.
Ms. Geoghegan, by the way, did TARP lose money for the
taxpayers of the United States?
Ms. Geoghegan. Congressman Connolly, TARP has been a great
success, so it is very difficult to answer that question. We
have not yet received back all of the investments made under
TARP, but we have received back an incredibly large number of
them; I believe roughly 93 percent of the investments. But,
overall, TARP itself was an incredible success; it averted a
financial calamity and prevented a second Great Depression.
Mr. Connolly. Now, let me ask both you and Ms. Romero are
you familiar with a letter addressed to Mr. Jordan and Mr.
Cartwright, dated today, from Mr. Feinberg?
Mr. Chairman, I would ask that this letter be entered into
the record.
Mr. Jordan. Without objection.
Mr. Connolly. I thank the chair.
He makes two points in response to queries from the
subcommittee, and the reason you haven't seen it is he only got
our letter yesterday. But he says the pay prescriptions
promulgated during my tenure at Department of Transportation
should be applied in a flexible manner and should not be used
to strictly limit each individual executive's compensation.
He goes on to say that when one examines the statute, the
statutory directive guiding the special master, in calculating
compensation, he says there are different statutes that are
conflicting. He says, for example, there are conflicting
statutory directives. For example, make sure the Treasury
compensation decisions ensure the ongoing competitiveness of
those companies subject to Treasury oversight, while also
making sure that such pay decisions promote overall company
economic growth and avoid excessive risk. These conflicting
directives guaranty the special master must exercise a fair
amount of discretion in deciding compensation.
The second point he makes is that the circumstances that
existed in 2009 are different than the circumstances that exist
today and, therefore, they have to be taken into account in
terms of current actions by the special master. He says
compensation decisions made by the special master must take
into account this fact in making individual compensation
decisions that will ensure ongoing competitiveness in the
marketplace.
Would you comment on the two points he is making, one that
there is, apparently, before I got here, there were even some
illusions to the breaking of the law? Ms. Romero, I assume that
the special inspector general doesn't concur with that. You
found no breaking of the law, did you?
Ms. Romero. No. I found a lack of adherence to the Office
of the Special Master's own guidelines.
Mr. Connolly. Well, that is what you say, but here is one
of the special masters of all special masters saying, well,
first of all, there is conflicting statutory guidance here, and
the special master has to try to navigate his or her way
through this conflicting statutory guidance.
Ms. Romero. Sure. I am very happy to talk about that. So
because there is conflicting statutes, there is a lot of
discretion in the Office of the Special Master. And what we
have said is come up with the criteria, because that is what is
necessary for consistency, transparency, and effective
oversight. You have to set some standards. And this is why our
initial recommendations were so important. Tell us what the
criteria is under which you are going to make decisions for who
gets a pay raise, for who gets cash over $500,000. And without
the criteria there is no way to have effective oversight, and I
would think this committee, as an oversight committee, would
want that.
But I want to raise the competitive point. The competitive
part that you raised, of the marketplace, is already embedded
in the guidelines if they are followed.
Mr. Connolly. Wait, wait. You just said there weren't any
guidelines.
Ms. Romero. No, I said there were guidelines; they weren't
adhered to.
Mr. Connolly. Well, I heard you say come up with
guidelines.
Ms. Romero. He came up with, well, criteria.
Mr. Connolly. Criteria.
Ms. Romero. So he came up with guidelines, three guidelines
that I mentioned in my opening. But what we said is there is no
criteria or policies and procedures to ensure those guidelines
are met. And the market and what happens with the market is
already embedded in those guidelines if they are adhered to,
because pay is supposed to not exceed 50 percent of what their
peers are, so that already takes into account rising tide.
Mr. Connolly. Okay. All right, I am running out of time.
Mr. Chairman, could I ask for just 30 or 40 more seconds to
ask Ms. Geoghegan to respond?
Mr. Jordan. Sure.
Mr. Connolly. I thank the chair.
Ms. Geoghegan, what about Ms. Romero's point, that they
have been asking for criteria to go along with guidelines and
your office has failed to provide such criteria, which
compromises transparency?
Ms. Geoghegan. Thank you, Congressman Connolly. We have our
guidelines. Our guidelines are extremely useful ways of
implementing the somewhat conflicting principles under the
Treasury regulations, but we try to carry out all those
principles and that is why we have our guidelines. The fact is,
as Mr. Feinberg would tell you, we have to exercise discretion;
we have to exercise judgment in looking at the exact facts and
circumstances of each executive and each company. That is what
the principles say and that is what we do.
Mr. Connolly. Well, what about Ms. Romero's criticism that
you have yet to adopt clear criteria that all of us can then
measure and see whether you are abiding by them reasonably or
not?
Ms. Geoghegan. Thank you. Congressman Connolly, we believe
that if you were to look at our determination letters, we
explain how we view market data; we explain our policies and
procedures, which are incredibly robust; we explain all of how
we go about examining all of the information that the companies
submit. We believe that we have adequate policies and
procedures for making the decisions that we have to make.
On the point of raises, if I might address that briefly, it
is important to understand we do not always approve raises. But
it is also important to understand that the companies are
constantly evaluating the performance of their executives, and
with respect to some executives they give them promotions, they
give them added responsibilities, and that is why, in some
cases, pay raises are totally justified. In other instances it
is not unusual for them to come to us and to suggest that
executives receive a pay decrease.
So I think you have to think of things in terms of the real
packages that we see. It is not a question of the companies
coming to us and simply asking for pay raises. Those pay raises
are related to things like promotions and added
responsibilities.
Mr. Connolly. My time is up and I thank the chairman for
his indulgence.
Mr. Jordan. I thank the gentleman.
Real quickly before going to the gentleman from North
Carolina. Ms. Romero, of the requests for pay above half a
million dollars, as you evaluated what the special master did
last year, of those requests, how many did they turn down and
say, no, you cannot make above half a million dollars?
Ms. Romero. I think it was only a couple.
Mr. Jordan. Couple out of how many?
Ms. Romero. So there were 23 given.
Mr. Jordan. Twenty-three out of 25.
Ms. Romero. I think it was 26.
Mr. Jordan. Excuse me, two out of 25 they turned down?
Ms. Romero. I think it was three. I think the number was
three that were turned down and 23 that were given.
Mr. Jordan. And did they take them from half a million down
to $499,999, or what did they do?
Ms. Romero. Basically, everyone gets cash at $450,000 or
more.
Mr. Jordan. Oh, so this is not like they are going way
down; they are just dropping them a dollar or two.
Ms. Romero. Ninety-four percent.
Mr. Jordan. Again, making them uncomfortable so that we
don't have this continue.
Ms. Romero. Right. Right.
Mr. Jordan. I got it. I got it.
Ms. Romero. Well, give them some skin in the game. I mean,
that is why you want to limit cash. You want an employee to
have some skin in the game, not be paid for just showing up.
You want pay for performance.
Mr. Jordan. I was being sarcastic, but sometimes it doesn't
work.
The gentleman from North Carolina.
Mr. McHenry. My sarcasm often doesn't work.
Thank you both for your service to our government and to
the American people.
The question for you, Ms. Romero, is in light of my
colleague's questions, Mr. Connolly's questions. So what you
outline is, as an inspector general, as a special inspector
general for TARP, you are there to critique the program to make
sure the American people are taken care of and the taxpayer
isn't further put the screws to; that there is transparency,
there is consistency; you have a rules-based approach rather
than an ad-hoc approach. What you outline in your report today
is that the special pay master doesn't have a consistent
application of the rules and guidelines that they have outlined
and, furthermore, they are overly broad in the guidelines they
use, which gives them such great discretion.
Obviously, they disagree. This is very often the case with
inspectors general when they put critiques out. This is not
uncommon, based on the experience that I know you have had with
this program for the last five years.
Now, I ask this question because doesn't that ad-hoc basis
raise and up the ante on moral hazard? Now, many of us
disagreed with the bailouts, and I certainly appreciate Ms.
Geoghegan's saying TARP was a great success. Now, the fact is
the taxpayer, at current accounting, is going to lose about $70
billion on TARP. I appreciate you saying it is a great success.
I appreciate you upping the ante.
I know it is your responsibility, as an administration
official, to defend this Administration. You have done a
yeoman's task today, even to the point where, when you called
TARP a great success, I laughed. It wasn't a snicker; it was
actually a genuine laugh. It is ridiculous. But that is your
perspective.
The question I have for the American people and for the
taxpayer, Ms. Romero, why does this matter? It is 69 people
getting paid. It is how many companies now?
Ms. Romero. Three
Mr. McHenry. Three.
Ms. Romero. Well, two for 2013.
Mr. McHenry. All right, who cares? Why does this matter?
Tell me why it matters.
Ms. Romero. Two reasons. One, you are paying for it. That
is the first reason. So if there is excessive compensation, all
taxpayers are subsidizing it. Then there is a more important
reason, which is executive compensation played a material role
in causing the financial crisis. When you have high cash, when
you don't use long-term restricted stock tied to individual pay
performance, you risk returning back to the very type of pay
that got so out of hand that it caused these companies to
nearly collapse, and all of us had to step in.
Mr. McHenry. So it is not the principles outlined by the
original special pay master, Mr. Feinberg, that is the issue;
it is their unwillingness to put a rules-based approach to
judging these pay packages, is your critique.
Ms. Romero. Right. I mean, I think applying those
guidelines, Mr. Feinberg said, was supposed to get that
balance, where you don't have excessive compensation, but the
companies keep competitive. You rip away those guidelines, you
chip away at those guidelines, all you are left with is the
companies in the ear of the special master saying this is what
we want; and we are seeing more and more, each year, as time
goes by, that the companies are getting more and more and more
what they want.
Mr. McHenry. So you reference a report that both Citi and
Bank of America exited TARP faster, in an accelerated way,
based on the pay restrictions.
Ms. Romero. Right.
Mr. McHenry. So it does have an impact on getting people
off the taxpayer dime and getting them back to independent
entities again, does it not?
Ms. Romero. Absolutely.
Mr. McHenry. Okay. So, look, the question here is not about
private sector pay, right?
Ms. Romero. Right.
Mr. McHenry. As you mentioned, say, on pay by shareholders,
I think that is an important principle that we adhere to. Now,
what I am concerned about is the American people and the
taxpayer be on the hook for this pay. We have written a law in
such a way that we should have principles adhered to by the
special pay master.
And I would hope that your office, Ms. Geoghegan, would
actually read the report, look at ways that you can change and
improve, and actually stand up for the American people and the
taxpayers that are paying not only your freight and my freight,
but still own the greater portion of these companies.
Now, final question, and just so we have this on the
record. How much has TARP been paid back from General Motors?
Ms. Romero. From General Motors, about half. It was $50
billion. They are still owed about $20 billion. I want to also
point out, because I think this was raised earlier, the
Government expects a loss in TARP, and about $20 to $25 billion
of that is in the auto companies.
Mr. McHenry. Thank you, and thank you for noting that for
the record.
Thank you, Mr. Chairman, for your leadership.
Mr. Jordan. I thank you.
The gentleman from Georgia, Mr. Collins, is recognized.
Mr. Collins. Thank you, Mr. Chairman. I appreciate this.
What is amazing about this discussion, and I have been in
Washington now all of probably eight weeks, as I was told,
however, on January the 3rd, I became part of the problem. What
I will fight back on, though, is the fact that I believe that
we are all in this.
And I think, Ms. Romero, you made the comment just a minute
ago why this is important is that you are paying for it. I
think that just needs to be the theme that we hit here all
along, is that we lose track in the numbers and the guidelines
and everything else about who actually and why actually this is
important, because there is a trust factor out there, if you
have you not noticed. People don't trust us anymore. They don't
trust us on the level to spend their money properly. They don't
trust us to get the budget straight. They don't trust us on so
many different levels. And then when we come to an issue like
this, it is amazing.
One of the other things that I have been amazed about since
I came here is hyperbole.
Ms. Geoghegan, to say that TARP was this excessive and
great success and that it avoided the next Great Depression, I
am just curious here, did it also cure the common cold? Did it
also do all these other great things? Hyperbole here does not
help us. The Administration wants to say that it was this and
explain that, and as my colleague said, that is your opinion
and you are having to sit here and endure this.
The questions that I have, though, sort of the basis of it
is when we endure the issue of lack of adherence to guidelines,
we don't follow the rules or we make them up as we go, or
really what I think it is is time sort of cures all ills. In
other words, time is progressing here. People get tired of
hearing about this, so it becomes very easy for the special
master to listen and say, well, maybe we need to approve this.
The concern, however, for me is this: when you look at the
question, and you have stated you understand the 50 percent
guidelines, Ms. Geoghegan, is that correct? You understand that
process. However, we have over-exceeded on several occasions,
and I will just use several lightly.
Ms. Geoghegan. Congressman Collins, I would like to
clarify. We satisfied the guidelines as we have applied them to
AIG, GM, and Ally Financial. We apply the same benchmark we
have always applied to those three companies.
Mr. Collins. But on the 50 percent rule, 63 percent of the
time in 2012 you approved overage.
Ms. Geoghegan. Congressman Collins, the way we apply----
Mr. Collins. Answer the question. Did you do it over 63
percent of the time?
Ms. Geoghegan. There is a range of compensation. The
average of the compensation----
Mr. Collins. Again----
Ms. Geoghegan. The guideline is not do we exceed it; the
guideline is do the packages as a whole at the particular
company average to the benchmark. That includes, as we describe
in our determination letters, that means that some of the pay
packages are above and some are below, but the average is at
our benchmark. That is how we have always applied the guideline
for market forces.
Mr. Collins. Well, it seems like the averages that we are
applying to, for the most part, are always on the side of
approving. I mean, we are continuing this process. And, again,
one of the things that was brought up, as we talked about it
from a perspective of this being the taxpayer funding this, is
that the Government is still on significant hook, especially GM
and Ally, in a rate that we are not going to get paid back,
that at the start process and others, that we are in for this.
And I think what actually happens here is time progresses. And
this is my concern, and it has been talked about here many
times, of the fact that the guidelines and the adherence to
those guidelines--you made an interesting comment. I will just
have to ask; I am not sure. You mentioned pay decreases. How
many of you approved pay decreases? This was in your own
testimony just a few minutes ago.
Ms. Geoghegan. Yes. Congressman Collins, AIG, last year,
when we were in the pay packages that they proposed, the pay
decreases that they proposed well outweighed the one pay
increase that they requested. In the case of Ally Financial,
the pay decreases that they proposed outweighed the pay
increases that they requested. Neither of those companies asked
for a net pay increase in 2012.
Mr. Collins. Well, I think the problem we have here is that
they have become comfortable in the situation in which they are
in. They have become comfortable where they are at. There is no
incentive for them to get out of this and to find a way to pay
this back or to get back--because they have become very
comfortable. They can understand, well, if we do a little
decrease here, get a little increase here, it begins to weigh
out and nobody is paying attention.
Ms. Romero, I have a question for you in the short time
left. Who will safeguard the taxpayers' money tied up in TARP,
if it is not the special master?
Ms. Romero. That is the question. I will try. I will do my
best. Our entire office at SIGTARP will do our best. But we are
not ones making the decisions.
Mr. Collins. Because right now it looks like there is one,
and your own comment just a minute ago, the company is in the
ear, the company is making the progress, and that in the end we
are sort of left on the hook with what the special master, in
this ``confusion of rules and guidelines.''
I think the problem we have here, Mr. Chairman, and I know
we are coming to an end, but this is the problem I have. The
American people go to work every day, they look at these issues
and they understand things that are grey at times, but they
also understand process. They also understand rules. And what
they do not want to hear from us is a continual, well, the rule
says this, the statute differs here.
Look, the American people are on the tax line for this;
they are paying for it. They are frustrated by it. And to come
before this committee and say, well, we have done it here and
we didn't do it here, and simply the guidelines are out of
whack, that is not acceptable, and the taxpayer is paying for
it.
Mr. Chairman.
Mr. Jordan. Thank you, Mr. Collins. You are exactly right.
The American people, what they hate is when they are told one
thing and they see something else happen. The President said
top executives at firms receiving extraordinary help from
United States taxpayers will have their compensation capped at
half a million dollars.
Mr. Biden, always one to have a statement for the public,
said I would like to throw these guys in the brig. This was all
back when the Government was convincing the American people
they needed to pony up their tax dollars to bail out companies
that were failing, and then, of course, the Treasury secretary
said base cash salaries should rarely exceed half a million
dollars and should be, in many cases, well under half a million
dollars.
Well, we have heard from testimony today that is just not
happening. The trend is exactly the opposite direction. Six
executives in 2009, when there were seven companies in this
exceptional assistance category, only six executives received
pay above half a million dollars. Today it is 23 and we are
only focusing on two companies today. So the trend has been
like this, when the President said no one, no one should be
receiving a compensation package above half a million dollars;
and the trend is exactly the opposite direction.
And we also heard from Ms. Romero today; she said, in fact,
those who are below half a million dollars, they are right next
to the ceiling, they are all making $450, $480, $499,999.99.
That is where they are all at. And yet Mr. Geithner, who is
your boss, Ms. Geoghegan, said it should be, in many cases,
well under half a million dollars.
So Mr. Collins is exactly right. The American taxpayers are
like, we were told X and we are getting Y, and we are sick of
it. We are sick of it from the politicians and we are certainly
sick of it from other people who we are paying their salary to
do their job. And frankly, Ms. Geoghegan, you are not doing it.
You are not doing it and you are not doing it with companies
they are bailing out in the process.
Ally Financial, 74 percent owned by the American taxpayer,
and their subsidiary, ResCap, going bankrupt, you just approved
their CEO's compensation package of over half a million
dollars. So it is like what the heck is going on here. And it
is no wonder Ms. Romero is ready to pull her hair out and so
frustrated, because for several years now she has said get your
act together, at least set some standards; tell us how you are
making this thing work or how you are going to make it work.
In fact, how do you determine what the market rate is and
what that median price? How do you determine that? What is the
process in place that you have?
Ms. Geoghegan. Chairman Jordan, we gather an enormous
amount of market data. We have in-house executive compensation
professionals who review it.
Mr. Jordan. Is some of the data given to you by the very
companies you are overseeing?
Ms. Geoghegan. From the beginning we have given companies
instructions as to exactly what we need in terms of market
data.
Mr. Jordan. So you are relying on the very company, Ally,
the company 74 percent owned by the taxpayers, a subsidiary
going bankrupt, you rely on some of the information they give
you to determine what the market price is?
Ms. Geoghegan. We give them----
Mr. Jordan. Is that what they do, Ms. Romero?
Ms. Romero. Yes.
Mr. Jordan. That is exactly what they do?
Ms. Romero. Yes.
Mr. Jordan. Well, no wonder you are approving everything.
So they get to be the judge, jury, and the decider in the whole
thing, and they are the very company getting the taxpayer
dollars in the first place. So they are saying, you know what,
we think the average is here and, oh, by the way, this is what
we want to be paid, and they give you the information and you
check it off. Well, how is the taxpayer being protected in that
formula?
Ms. Geoghegan. Chairman Jordan, I would like to clarify.
From the beginning we have asked the companies, they have the
best access to the broadest and most comprehensive market data.
Our executive compensation professionals have explained to them
exactly what they need, and our professionals are----
Mr. Jordan. This is amazing. This is like me asking, when
my kids get in trouble, me asking them what kind of punishment
do you want. This is amazing. Frankly, I didn't realize it was
this bad; that you are asking Ally, 74 percent owned by the
taxpayer, subsidiary, you are asking them give us the
information that shows us what you should be paid and we will
make a decision, and what is your recommendation?
Ms. Geoghegan. Congressman Jordan, we have the expertise to
evaluate that market data.
Mr. Jordan. You have the experts who take all the
information from the very people you are supposed to be
overseeing, and you are saying they are so expert that they can
determine that, oh, that is not going to work? And yet we just
heard from Ms. Romero you are approving almost every
compensation package they ask for. Well, of course; they are
giving you the data to make the decision.
Ms. Geoghegan. Chairman Jordan, we actually have the
ability to evaluate the market data. We spend an enormous
amount of time doing that. We do spend an enormous amount of
due diligence.
Mr. Jordan. Ms. Romero, this is frustrating. Ms. Romero,
how I have characterized it, is that accurate?
Ms. Romero. The companies? Yes. The companies give market
data. So, for example, for 2012, while the Office of the
Special Master looked at that market data, they went with the
companies' determination of the companies and the 50th
percentile.
There is another important point here. When you look at the
companies that are in the peer groups, for example, for AIG,
the companies are picking those, JPMorgan Chase is in the peer
group, other large banks. They set the peer groups. And one of
the things Special Master Feinberg testified before Congress is
that in that competitive market data that the companies send,
he said the companies were asking for more and more and more,
and that was his congressional testimony.
Mr. Jordan. What is the remedy? Obviously, they are not
going to listen to you. And we know GM and Ally are going to be
in this for a while. We know what is happening with the stock;
they are going to be here. So what is the remedy? Time and time
again, I read your testimony where you over and over again say,
come on, listen to me; set some standards, do something. Four
years. How do we get at this? Are we going to have to look at
some legislation?
Ms. Romero. I have seven recommendations, and the remedy is
to get those seven recommendations implemented. Every year to
re-look at it.
Mr. Jordan. I read your recommendations. I get it. But what
I am saying is are we going to have to look at legislation,
introduce legislation, try to pass something to make this
office accountable to the taxpayer?
Ms. Romero. The fact of the matter is every time an IG puts
out a report and puts out recommendations, an agency has an
opportunity. They have two choices: they can completely ignore
them and end up in the same situation that caused the report in
the first place.
Mr. Jordan. And is that what you believe they have done?
Ms. Romero. So far.
Mr. Jordan. Okay.
Ms. Romero. Or what they can do is they can say we are
going to implement every single one of those recommendations
and work with you to do it in a way that is done right. That is
what should happen.
Mr. Jordan. And that is what should happen not based solely
on your good work, but that is what should happen based on what
the leaders of our Government told the American people they
were going to do when they started this program.
Ms. Romero. Absolutely.
Mr. Jordan. So it is not just your good work at your
office, which has been exceptional; it is because that is what
the people in charge of our Government told the American
taxpayer they were going to do, and it is not being done.
Ms. Romero. Absolutely. And, also, those guidelines were
developed in the public's interest. So if they are not going to
be adhered to, how is the public's interest going to be
implemented?
Mr. Jordan. Okay, Ms. Geoghegan, who is your direct boss at
Treasury?
Ms. Geoghegan. Ultimately, I report to the Secretary of the
Treasury.
Mr. Jordan. Okay. And can you let me know, has the White
House, has Mr. Geithner said that this stuff was okay? Has the
White House communicated to you through Mr. Geithner, in a
direct fashion, saying it is okay to see this trend, where more
and more executives are getting their pay approved above the
half a million dollar mark? What kind of communication have you
had with the White House, if any?
Ms. Geoghegan. Chairman Jordan, I have not had any
communications with the White House.
Mr. Jordan. Has Mr. Geithner expressed any communications
to you about this program that he has had with the White House?
Ms. Geoghegan. No, he has not.
Mr. Jordan. And is your direct Mr. Massad, Tim Massad?
Ms. Geoghegan. Yes, that is correct.
Mr. Jordan. Has he expressed any indication that he has
communicated with the White House chief of staff, someone at
the White House, or with Mr. Geithner about this program?
Ms. Geoghegan. Chairman Jordan, he has not, but may I
clarify that the Office of the Special Master is an independent
office in Treasury.
Mr. Jordan. But you said your boss was Mr. Massad, right?
Who does he work for?
Ms. Geoghegan. I do brief the assistant secretary.
Mr. Jordan. And he is in the Treasury, right? He is
employed by the Treasury.
Ms. Geoghegan. He is at the Treasury, but the decisions are
made by the special master.
Mr. Jordan. How about Mr. Lew today, any conversation Mr.
Lew has had with you or Mr. Massad relative to this program?
Ms. Geoghegan. I am not aware of any.
Mr. Jordan. So the President goes on national television,
talks about no one should be paid above half a million dollars,
and yet they don't even talk to you about the fact that now we
have all these people who are paid and the trend is this
direction, and everyone who is below $500,000 is right next to
$500,000? No conversations at all with the White House about
this?
Ms. Geoghegan. No, Mr. Chairman.
Mr. Jordan. Man, we do need some controls put in place. The
taxpayers are surely getting a bum deal here.
With that, I will yield to the gentlelady from Wyoming,
then I will come back to Mr. Cartwright for his second round.
Mrs. Lummis. Thank you, Mr. Chairman.
Following on the chairman's line of questioning, Ms.
Geoghegan, why not have an independent evaluation of these
salaries, since they are being funded by taxpayers in no small
part, rather than private sector, and since the New York Wall
Street establishment has a network that sort of perpetuates a
belief that what they do is worth more than what other people
do? Why not have an independent evaluation? I managed billions
of dollars when I was Wyoming State treasurer, and I got paid
$92,000 a year, and I was managing $8 billion at the time. Why
not have an independent evaluation, when taxpayer money is
involved, of these kinds of salaries?
Ms. Geoghegan. Congresswoman, I believe that is what the
Office of the Special Master is there to do, and we do do an
enormous amount of due diligence. We spend an enormous amount
of time gathering market data and evaluating it.
Mrs. Lummis. But is the market data using only the private
sector money management as its standard? Because, as I said, I
was managing public money and I was paid by the public, and we
are managing, we are responsible for taxpayer money that bailed
out private businesses.
So no longer are we really talking about a private sector
model; we are talking about the taxpayers being invested in
this company and expecting that we will have oversight over how
that money is handled. So when they only use a private sector
model that is generated by their so-called peers like JPMorgan,
that is really not a peer group for the situation that exists.
So why not go outside, why not do independent evaluators?
Ms. Geoghegan. Congresswoman, the Office of the Special
Master takes its responsibility as steward of taxpayer
investments in these companies very carefully. We have worked
hard at determining which are the correct comparative companies
and we have told these companies----
Mrs. Lummis. But they are companies, right? See, here is
the problem. When I was State treasurer, again, paid $92,000 a
year, I was managing billions of dollars, but it was taxpayer
money and the taxpayers were paying me. And I would suggest to
you, since, when I started as State treasurer, we had $3.5
billion and when I finished a term limit as State treasurer we
had over $8 billion, but I was responsible, very prudent in the
manner in which I managed taxpayer dollars for $92,000 a year.
Why isn't that part of the pool, State treasurers that are
managing billions of dollars? Connecticut's State treasurer
manages billions of dollars; North Carolina's State treasurer
does. Not all do, but there were a handful of us that managed
billions. Why are not those public employees, why are they not
part of the so-called market in this instance, where it is the
hardworking taxpayers' money that has bailed out these
companies and not using a peer group that includes other Wall
Street businesses that were not bailed out?
Ms. Geoghegan. Congresswoman, if we take, for example, AIG,
AIG is in the private sector and its competitors include
companies like MetLife, like Aetna, like Prudential; they
include financial services companies like American Express.
These are the people against, these are the businesses against
which they compete and these are the businesses from whom they
recruit their employees.
Mrs. Lummis. And I understand that, but they are not
competing on a level playing field right now. They are not the
peer group anymore, because the taxpayers bailed them out.
Now, if we had allowed them to go the way of Lehman
Brothers, I would absolutely agree with you. If the moral
hazard had been executed, I would absolutely agree with you. I
think Barclays should be paying the people it kept after Lehman
Brothers was acquired by Barclays. Then I would agree with you.
That is the peer group from which they are hiring.
But they are not in the same peer group anymore because the
taxpayers of this Country, the little steel worker, the coal
worker in my State bailed out AIG. So it is not the same peer
group anymore, and I would suggest to you, and I respectfully
disagree with you that it is the same peer group. In my
opinion, it is not.
Mr. Chairman, I yield back.
Mr. Jordan. I thank the lady for her good line of
questioning.
I would yield now to the gentleman from Pennsylvania, and
you can have a few more minutes than five, if you would like,
Mr. Cartwright.
Mr. Cartwright. Thank you, Mr. Chairman.
So, again, thank you to the witnesses for coming today. We
look at the big picture here, we roll back to the clock to
2008, when we had this enormous catastrophic financial calamity
that occurred in this Country and threatened to throw us right
back into the worst financial picture since the Great
Depression, and maybe worse than the Great Depression. We saw
that; we remember that.
And in order to avert that the Federal Government, and all
of the people at the highest reaches of the Federal Government,
decided to hold its nose and engage in this TARP program,
bailing out huge companies, in the process, obviously,
successfully saving millions of middle class manufacturing
jobs, jobs for people in all of our districts, jobs for people
making cars in this Country, people making other things in this
Country. Those jobs were saved as a result of the TARP program.
We held our noses because it cost so much money, so much
federal taxpayer money indebted us so deeply to do that, but it
turned out to be a good gamble because we have recovered, as
Ms. Geoghegan has said, 93 percent of this money. Probably the
biggest reason that we held our noses while we did that TARP
program was that we had to pay the people to run these
companies. We had to pay the people to run the companies to
make sure that those employees were still employed making
things, building cars, keeping the American economy rolling.
And we had to pay those people to run the companies so that the
taxpayers would get that TARP money back, 93 percent of which
we have gotten back. We held our noses because you have to pay
people who run companies an awful lot of money; that is just
the way the market is. Everybody knows that. Mr. Feinberg has
said it; the witnesses have said it.
So it is an unfortunate situation. It is something that we
have been doing a lot of nose holding throughout the whole
process, but it has been a success story. And what I want to
know, what I really want to establish here is this the
oversight panel, and the thing that I really care about is
whether the law is being followed. Has the law been followed
with respect to executive compensation?
Now, Ms. Romero, I want to direct this question to you.
Ms. Romero. Sure.
Mr. Cartwright. The standard examined in your report that
``total compensation should target the 50th percentile for
similarly situated employees at similarly situated entities and
that cash salaries should not exceed $500,000,'' that is not in
the statute but it is within Mr. Feinberg's ``prescriptions,''
am I correct in that?
Ms. Romero. Mr. Cartwright, there is nothing in the TARP
statute that talks about anything. If you remember, the TARP
statute is October 2008, where TARP was supposed to be getting
toxic assets off the books of banks. None of the 13 programs
that are in TARP are in the TARP statute, other than helping
homeowners. There is nothing in the TARP statute.
That is not how Treasury implemented it; Treasury
implemented it through guidelines. And, as an oversight entity,
I have to look at the guidelines they used to implement and
they set the standards, and that is how I have to judge
performance; otherwise, there is no standards at all for the
bank bailout. There is zero. There is nothing in the statute.
Mr. Cartwright. So they are guidelines, there are
prescriptions, but it is not the law about $500,000 or 50th
percentile.
Ms. Romero. Well, what the TARP law says, ESSA says, that
Treasury should implement executive compensation standards. So
that is what the law says. Treasury did implement executive
compensation standards, and those are the standards they should
be held to. So actually, there is, in broad form, the
delegation in the law to Treasury to set the standards.
Mr. Cartwright. Now, at a February 25, 2010 Financial
Services Committee hearing, Special Master Feinberg explained,
``By application of the principles set forth in Treasury's rule
on executive compensation to the facts and circumstances
underlying my determinations to date, I have developed a number
of generally applicable practical prescriptions, including the
following: guaranteed income is rejected except for cash
salaries at sufficient levels to attract and retain employees;
these generally should not exceed $500,000 per year except for
good cause shown; total pay should generally not exceed the
50th percentile of total compensation for similarly situated
employees.''
Now, Ms. Geoghegan, you have statutory requirements. Your
office also has more specific responsibilities dictated by
Treasury's interim final rule. Will you please place the
Feinberg prescriptions in context for us?
Ms. Geoghegan. Thank you, Congressman Cartwright. Mr.
Feinberg's, what he calls prescriptions, what in all of our
determination letters we call either standards or guidelines,
were the general rules of thumb that the Office of the Special
Master adopted to specifically apply the principles in the
interim final rule. There are six principles; they are general
principles, and in order to make them more specific when we are
examining each pay package, the Office of the Special Master
came up with what Mr. Feinberg sometimes called prescriptions,
but which we usually call guidelines.
And those are exactly the guidelines that we continue to
use today. We do benchmarking on market data to make sure that
the pay packages do not exceed the level for pay for similar
positions at similar companies. We minimize cash pay; we
maximize stock pay; we make sure that if there is incentive
compensation, it is awarded only on the achievement of pre-
established performance goals; and we limit perks. Those were
the five prescriptions that Mr. Feinberg adopted and those are
the five prescriptions or guidelines that we continue to follow
today.
Mr. Cartwright. Now, what do you believe was the intended
use of those prescriptions or standards or guidelines?
Ms. Geoghegan. Congressman Cartwright, clearly, the task
under the law of the Office of the Special Master is to achieve
a balance between limiting compensation and making sure that
pay levels are such that companies can compete, can succeed,
and will repay the taxpayer. And that is, I think, a look at
our record shows that that is in fact what we have achieved and
what we have accomplished, and these seven companies have done
that and today we expect significant additional returns from
our investments in both GM and Ally Financial.
Mr. Cartwright. The executives receiving the compensation
that you are overseeing and approving, were all of them around?
Are these people who were responsible for the financial mess in
the first place?
Ms. Geoghegan. Congressman Cartwright, I appreciate very
much the opportunity to address that point. All three CEOs at
these companies were hired by these companies after the
taxpayers had made their investments in these companies. All
three CEOs were hired in order to reform the companies, to
restructure them, to lead them forward; and the top 25
individuals at each of the three companies whose pay packages
we reviewed in 2012, virtually none of those people were there
in 2009, for example.
Almost all of those people have been promoted into those
positions or, in a few cases, they have been newly hired. So we
are talking about the people who are leading the companies, who
are producing the results, and who are working toward the
return of the taxpayer investment. Those are the people that we
are evaluating, and we are not paying for failure; we are
paying for their successful management of these companies.
Mr. Cartwright. Finally, I don't think I say it too
strongly, Ms. Geoghegan, when I say that there have been
accusations leveled at you, that you have rolled back
application of guidelines aimed at curbing excessive pay. How
do you respond to that?
Ms. Geoghegan. I think, Congressman Cartwright, in my oral
testimony I went point by point through each of the five
guidelines, or prescriptions, and showed exactly how, if you
look at our numbers, if you look at our actual record
carefully, it is clear that we have satisfied each of those
guidelines in the 2012 determinations, and we will satisfy them
in the 2013 determinations as well.
Mr. Cartwright. Thank you so much.
I will yield back the time.
Mr. Jordan. Thank you.
Ms. Geoghegan, when we played the President's statement, he
said top executives at firms receiving extraordinary help from
the United States taxpayers will have their compensation capped
at half a million dollars; he did not say top executives at
firms receiving extraordinary help from U.S. taxpayers will
have their compensation at half a million dollars unless it is
a new CEO or a new employee at the company.
So the standard, we had this discussion about the law and
how Treasury interprets the laws and how the guidelines work
and all, but the fact is the statement is the statement, and it
was sold to the American people on the simple premise we are
capping it at $500,000. We don't care if he didn't say, oh, but
if there is a new guy who comes in or a new lady who comes in
this position, this position, or this position, forget that, we
will make up our standard then and we will let them make more
than half a million dollars, and we won't look at it and we
will go from six out of seven companies. He didn't say that,
did he?
Ms. Geoghegan. No, sir, he didn't.
Mr. Jordan. So the same standard applies, right, regardless
of who is running the company?
Ms. Geoghegan. Well, that standard was not incorporated
into the statute.
Mr. Jordan. The standard has not changed; the Treasury
rules are the same, regardless if it is a new person. So the
person who was there in 2009 or for someone else, the same
standard applies, correct?
Ms. Romero, does the same standard apply?
Ms. Romero. Absolutely. It is Treasury's standard.
Mr. Jordan. Exactly. So this idea that, well, we have
different people running the company, so now it is different,
that, I think, just proves what Ms. Romero has been saying for
several years, that there is not guidelines that you guys have
in place that you can objectively determine what the standard
really is.
Ms. Geoghegan. May I address that?
Mr. Jordan. The simple question is, Ms. Romero, do you
think they have listened to anything at all, any of the
suggestions you have given over the last several years? Has the
special master taken any of your advice, any of your counsel
and implemented it in how they decide executive compensation?
Ms. Romero. Nothing meaningful.
Mr. Jordan. And, Ms. Geoghegan, first of all, I assume
maybe you would disagree, but why haven't you done that? Do you
not like them? Do you think, what the heck, we don't have to; I
am the boss here? They seem like pretty smart folks over there;
they have given you suggestions. It seems it would be clear to
me that there has been a trend in the direction of giving more
and more executives compensation above half a million dollars.
Why haven't you taken any of their recommendations to heart and
implemented them?
Ms. Geoghegan. Chairman Jordan, I would like to clarify
that point. We understand the importance of diligent oversight
and we have benefitted from SIGTARP's review of our work.
However, we do have very robust policies and procedures. I hope
today we have made the case that we continue to follow those
policies and procedures and guidelines. We have actually
implemented, if I may say so?
Mr. Jordan. Sure.
Ms. Geoghegan. We have implemented several of SIGTARP's
recommendations and we are in the process of considering
others. But we have fully implemented a number of them.
Mr. Jordan. The lady beside you is shaking her head pretty
strongly no.
Ms. Romero, would you disagree with that?
Ms. Romero. Eight recommendations; one has been
implemented, and that was to keep better documentation of their
use of market data. That is it.
Mr. Jordan. The market data that they get from the
companies that they are overseeing, correct?
Ms. Romero. And how they look at it. I will give you an
example. We said substantiate why someone should be paid a cash
salary over $500,000. What they did was maintain an eight-page
spreadsheet which gives the reasons for that, which largely
parrot what the companies say. Well, we didn't say better
document it; we said substantiate, meaning there has got to be
a real independent analysis.
Mr. Jordan. I am glad you raised that point, because I
wanted to get into this. Here is the document we received,
which is justification for exceeding half a million dollars
recommended by executive compensation committee. So this is the
document we got from one of the companies. It has everything
blacked out except the employee ID number. So employee 4859
gets, they are recommending a cash package of $1.7 million;
employee 2986 they are recommending $850,000; employee 5021
they are recommending $875,000.
This is what we got. I hope you are getting more than that.
Frankly, I hope they are getting more than that when they are
making their decision. But it can't be this bad, I assume, for
you guys; there has to be some justification.
Now, one of the things we did get is we got, and this was
in 2012, employee performance goals. Some of the stuff that
wasn't redacted, we got statements like move the organization
to be market-and consumer-driven company. I guess that is
versus a government-driven company. Optimize and manage
complexity. These goals, I have no idea what they mean.
Ms. Romero. The goals really don't matter because they are
only tied to long-term restricted stock, and it has been
removed for half of the employees.
Mr. Jordan. Okay.
Ms. Romero. So the pay for individual performance, the
long-term restricted stock has been removed for every single
Ally employee and some of the GM employees and some of the AIG
employees. So most of them actually don't have any goals.
Mr. Jordan. So no goals at all, let alone vaguely written
ones like this?
Ms. Romero. Not individual goals, no.
Mr. Jordan. I was telling the staff the other day, when I
first looked at it, my background coaching, working with
student athletes, and one of the things we do at every season,
we say write down your goal for this season; and we said we
don't want this baloney I want to be the best I can. Or, do you
want to be a national champ, do you want to be an all American,
do you want to make the varsity? What is your goal? Pretty
specific.
This is--I have no idea what this is. But back to the first
question, it can't be this bad for you, right?
Ms. Romero. No, we get information.
Mr. Jordan. How much of what you get is redacted and
blacked out?
Ms. Romero. No, we do not get anything redacted.
Mr. Jordan. So you get to see the full thing. Okay.
Ms. Romero. We get to see the full thing.
Mr. Jordan. But is it still kind of this generic language
that I just cited here, some of this sort of warm and fuzzy
language?
Ms. Romero. We see the language and then we do interviews
and we try to see sort of why did somebody get a raise, for
example; and we see the explanations from the companies and we
see the explanations from the Office Special, and what we found
is the Office of Special Master's reasoning largely parroted
the reasoning of the companies.
Mr. Jordan. So you are getting the same statement from the
special master that you are getting from the companies, and the
special master makes the decision on information they get from
the companies, the very companies the taxpayers are bailing
out.
Ms. Romero. Yes.
Mr. Jordan. Such a deal. Such a deal.
Ms. Geoghegan, do you want to comment on any of that?
Let's go back to the first question. Why one of eight, and
it was just more documents? Why haven't you looked at some of
the other recommendations that repeatedly have been given to
you by SIGTARP? And do you make that decision, or does Mr.
Massad or does Mr. Geithner, or now Mr. Lew? Who makes that
decision, is that ultimately your decision?
Ms. Geoghegan. It is my decision, yes.
Mr. Jordan. And do you have to clear it when them, let them
know what you are doing? I mean, once you make the decision, do
you inform them? Do they get some notice of that?
Ms. Geoghegan. I certainly do inform them before we go out
with a determination letter.
Mr. Jordan. Okay, so eight recommendations you have been
given by SIGTARP, you have implemented one, just this thing on
documents. And when you do that or fail to do the other seven,
you let Mr. Massad know that, I assume he lets Mr. Lew now know
that or Mr. Geithner previously. Ever any feedback from those
guys?
Ms. Geoghegan. Chairman Jordan, in the Treasury there is
actually a checklist as to where these recommendations stand,
so we do keep track of whether we are or are not following up
on any of SIGTARP's recommendations. And let me say we are
always open to improving our policies and procedures, and we
are currently considering some of these new recommendations
that have come from SIGTARP.
Mr. Jordan. Well, that is great to hear, that you are going
to consider them in the future. I mean, it has been five years,
repeated requests to do things different, and we have the same
old thing.
The last thing I will say, and then we will go to Mr.
Horsford, if my math is right, so in 2009 you had seven
companies, so that is potentially, top 25 executives, so that
is potentially 175 individuals who could potentially receive
cash compensation above half a million. And six were okayed to
receive that. Now, it may have been a lower number than 175,
but potentially could have been 175, and only six were allowed.
And again, this is what I think people are seeing here,
today you are down to two companies and it is 23. So
potentially 50 and you are giving 23. So almost half now, where
before, someone can do the percentage. Six out of 175 is a
pretty low percentage. And now it is 23 out of potentially 50.
That is the trend the taxpayer is seeing. That is the trend Ms.
Romero, that is the trend we are seeing as part of the
Oversight Committee. That is what concerns us.
The gentleman from Nevada is recognized.
Mr. Horsford. Thank you, Mr. Chairman.
Thank you to our witnesses for being here today.
Ms. Geoghegan, let me ask you. The Office of the Special
Master is governed by the interim final rule on TARP executive
compensation, is that correct?
Ms. Geoghegan. Yes, Congressman, it is.
Mr. Horsford. Thank you. And that rule is very explicit in
the principles your office is required to consider when
approving or modifying executive compensation packages,
correct?
Ms. Geoghegan. Yes, sir.
Mr. Horsford. So could you explain, then, the requirements
of the rule and the principles that you are explicitly directed
to balance?
Ms. Geoghegan. There are six principles, and two of the
most important are that compensation should be consistent with
and not excessive, taking into account amounts paid for similar
positions at similar companies. Another is that compensation
should be structured in a way that keeps the companies
competitive so that they can attract and retain employees who
will contribute to the success of the company and so that the
company will be able to repay the taxpayer.
There are focuses on discouraging structures that would
lead to excessive risk-taking. There is a principle focusing on
stock-based compensation so that the compensation will
ultimately reflect the performance of the company. There is a
principle relating to having some combination of short-term and
long-term and other elements of compensation. And, finally,
there is a principle making sure that the compensation reflects
the contribution of the individual to the success of the
company.
Mr. Horsford. So let me follow up on one principle in the
rule, and that is the compensation structure. Let me read what
it is. It says ``should reflect the need for the TARP recipient
to remain a competitive enterprise; to retain and recruit
talented employees who will contribute to the TARP recipient's
future success and ultimately to be able to repay TARP
obligations.''
Can you explain some of the challenges or conflicts that
this principle may create in making compensation
determinations?
Ms. Geoghegan. Thank you, Congressman. That goes to the
main task of our office under the law, which is achieving the
balance we need to achieve between limiting compensation on the
one hand and the other, making sure that pay is at levels that
permit the companies to be competitive and to repay the
taxpayer. So we aim to make sure that those pay levels are
market-based, not excessive when considering what similar
companies pay for similar positions. But on the other hand we
look at the structure to be sure that it doesn't encourage
excessive risk-taking. We minimize cash; we maximize stock. We
have fundamentally restructured the whole compensation package
that we generally approve for these employees.
Mr. Horsford. So then, Ms. Geoghegan, can you then, from
your mandate to balance these set of principles when limiting
compensation, can you discuss how you arrived at these
determinations for GM and AIG, specifically, in context of
these principles, please?
Ms. Geoghegan. Thank you. I would be happy to. For all of
our pay packages that we approved last year, we looked at those
six principles that we described, in addition to the five
guidelines that Mr. Feinberg originally established. Each of
the pay packages, if you look at our set of pay packages in
2012, 94 percent of those pay packages are majority stock; the
total amount of cash pay in those pay packages is 63 percent
lower than the median of cash pay compared to what similar
companies pay; we have made sure that the market levels meet
our benchmark.
In the case of AIG it was 48th percentile, GM 50th
percentile, and Ally Financial midway between 50th percentile
and 75th percentile. We have long-term--while there is not a
guideline requiring long-term restricted stock, there is a
guideline focusing on having a lot of stock-based pay, which we
do have. That may be in the form of stock salary and not
necessarily long-term restricted stock. Where we do have long-
term restricted stock, it is awarded only upon the achievement
of pre-established performance goals. And, finally, we
significantly limit perks.
And that describes our pay packages that we approved in
2012.
Mr. Horsford. Thank you, Mr. Chairman.
Mr. Jordan. The gentleman from Pennsylvania is recognized.
Mr. Cartwright. Thank you, Mr. Chairman.
Well, Ms. Geoghegan, I want to follow up with you. One
thing that we have talked about is the elimination of bonuses
as executive compensation, the elimination of golden parachutes
as executive compensation. Those have been done, is that
correct?
Ms. Geoghegan. Congressman Cartwright, that is correct. On
the other hand, I do want to point out that some amount of
incentive compensation is permitted under the law and under the
interim final rule, and for that portion, if we can, we like to
have some amount of long-term restricted stock.
Mr. Cartwright. Right. And that is where I was headed, Ms.
Geoghegan. You have talked at several points in today's
testimony about minimizing the cash compensation and putting an
emphasis on stock compensation. Would you again make clear for
us why we are doing that?
Ms. Geoghegan. We want to be sure that the maximum part of
the compensation will reflect the performance of the company
over time. By having stock that becomes transferrable or
payable only over a period of three years, we feel that this is
a structure that makes sure that the executives are not
focusing on short-term results and that they are not encouraged
to take excessive risks.
Mr. Cartwright. So, in essence, their reward is the success
of the company that they are running.
Ms. Geoghegan. Exactly.
Mr. Cartwright. Okay. And that is what we want, because
these are companies that we need to succeed not only because
they are employing the middle class people that work there, but
also because we need to get back our bailout money.
Ms. Geoghegan. Exactly. And if I can just point out, in
2012, when we made our AIG determinations, for example, I
believe it is the case that Treasury owned more than 70 percent
of the stock of AIG, at the time that we made the 2012
determinations, and we made those determinations based on
market data. In December of 2012 AIG exited TARP and the
Federal Reserve and Treasury received back the entire $182
billion of assistance that AIG had received from the Federal
Reserve and from the Treasury, with a total positive return of
$22.7 billion. So it is that kind of result that we are working
for when we set our pay packages in our determination letter
process.
Mr. Cartwright. Well, thank you for that. Now, of course,
we have Ms. Romero here, who has testified that SIGTARP has
made an awful lot of suggestions that didn't get accepted by
your office. Are you aware of a legal requirement that you have
to take all of SIGTARP's suggestions for how to structure
executive compensation, and what to approve and what not to
approve?
Ms. Geoghegan. Congressman Cartwright, I am not aware of
any legal requirement. Nevertheless, we have definitely
benefitted form SIGTARP's review of our work. We have made some
changes in our policies and procedures simply as a result of
the audit process when we are interviewed by SIGTARP or when we
give them information.
If I may give an example, it was not a recommendation of
SIGTARP last year; nevertheless, in our 2012 determination
letters, as a result of SIGTARP's focus on our market data, we
incorporated for the first time into all of our determination
letters an overview of the market data and our process for
evaluating the market data. That, I think, is a definite
improvement in our determination letters; they are all
available on our Web site. And we did that as a result of our
interaction with SIGTARP; it was not a specific recommendation
of theirs. But, as I say, we are always open to improving our
policies and procedures.
Mr. Cartwright. And we have also heard in today's
testimony, I think from Ms. Romero, that your office has been
open and forthcoming and transparent with information with
SIGTARP. Is that true?
Ms. Geoghegan. I certainly hope that that is what they
believe. I believe we are totally cooperative with all the
interviews they have requested and all of their written
questions. I think we give them all the information they ask
for in a prompt and cooperative manner.
May I just point out, also, Congressman Cartwright, that we
are very supportive of openness and transparency, and we do
have an excellent Web site, and we have a lot of information on
our Web site, including all our determination letters and fact
sheets.
Mr. Cartwright. Well, I want to thank you again for coming
here today, both of you.
Mr. Jordan. I am going to, if I could real quickly, Mr.
Cartwright, just one other line of questioning. In your
questioning with Ms. Geoghegan she talked about AIG, and I
think one of you said the reward is actually the success of the
company in the end, so I want to pick up on that and go to a
subsidiary of Ally, ResCap.
ResCap, I think we talked about this earlier, Ms.
Geoghegan, they currently are filing for bankruptcy, is that
correct?
Ms. Geoghegan. That is correct.
Mr. Jordan. And at least the information we were provided,
I assume you have the same information, 2013 exceptional
assistance justification for top 25 employees with cash
salaries greater than half a million dollars, and on this paper
is Mr. Moreno, employee ID number is listed, CEO of ResCap. He
is going to be paid over half a million dollars in cash. His
total compensation package, which was, again, given to us not
redacted, is $8 million.
So when you talk about, this is a company, again, 74
percent owned, the parent company, Ally, 74 percent owned by
the taxpayers. The justification given on this piece of
information that you all have says, under the line
justification for exceeding half a million dollars in cash
salary, salary at the request of the ResCap board of directors.
And you guys approved this.
Here is a company in bankruptcy, 74 percent owned by the
American taxpayers, and just because the board of directors at
the company says, you know what, even though we are in
bankruptcy, we think our CEO needs to make half a million
dollars and needs a total pay compensation package of $8
million, and you guys said yes to that? How do you justify
that?
Ms. Geoghegan. Chairman Jordan, in response to that, I
would like to make two points. The first one is that a
successful resolution of the ResCap legacy mortgage liability
situation is an important step before Treasury can continue to
receive value for its investment in Ally Financial.
Mr. Jordan. Are you going to approve it?
Ms. Geoghegan. If I may, Chairman Jordan?
Mr. Jordan. Go ahead.
Ms. Geoghegan. Secondly, whatever we approve for any ResCap
employees, all of those amounts are also subject to bankruptcy
court approval, and the unsecured creditors.
Mr. Jordan. We are not talking about that; we are talking
about what you are going to approve. Are you going to approve
that? You approved his salary in the past. They weren't in
great condition before and you approved it. Are you going to
approve it now?
Ms. Geoghegan. I actually can't address that, I don't know
what they are proposing. We have looked preliminarily at their
proposals. We are very far from approving anything that they
have proposed.
Mr. Jordan. Okay.
Ms. Geoghegan. We have to do all of our processing work
first.
Mr. Jordan. Ms. Romero, do you think a company 74 percent
owned by the taxpayers, subsidiary ResCap with its CEO
compensation package of $8 million being proposed, cash
assistance over half a million dollars, do you think that
should be approved when we are trying to look at the best
interest of the taxpayers and this program and getting people
out of this program?
Ms. Romero. No. And let me talk about Ally for just a
second, because we issued a report this past month on Ally.
Mr. Jordan. Sure.
Ms. Romero. Ally is GMAC, it is a subprime mortgage lender.
Ally was taken down literally by its mortgage unit of Rescap,
which was a subprime mortgage lender for all of these years.
Ally has continued to fail the Federal Reserve stress test year
after year after year. The ResCap issue, the mortgage
liabilities has been a problem since the start.
Mr. Jordan. Probably the biggest problem for the company.
Ms. Romero. The biggest problem. It has never been
addressed. Ally's CEO called it a millstone around the
company's neck. It has now become a millstone around taxpayers'
neck. And they finally filed bankruptcy in April 2012 for this
company, but at this point there is no concrete plan how
Treasury is going to get out of its 74 percent investment.
And when I say there is no concrete plan, I mean I go to
Treasury and I say how are you going to get this company back
on its feet without taxpayers' assistance, and they say we
could sell assets, the company could re-buy the shares, or we
could sell the shares on the market. And I said, well, that is
just how you dispose of any stock. There is no concrete answer,
which one of those things are you going to do? And the answer
is we don't know.
So there is no concrete plan at all to get Ally out of
TARP.
Mr. Jordan. And all of this was understood where this was
heading; it has been common knowledge in the market and,
frankly, something that the special master should know, and yet
they approved a pretty good compensation package for the CEO of
ResCap just last year. Is that correct?
Ms. Romero. The pay was approved in April 2012.
Mr. Jordan. Before they filed.
Ms. Romero. Just weeks before ResCap filed bankruptcy, and
it included, and I just want to point this out, a $200,000 pay
raise for an employee at ResCap; three ResCap employees got
packages exceeding the 50th percentile. And this is not the
amount of the pay package, this is how much it exceeded it by,
$1.7 million, $1.2 million, $850,000.
Mr. Jordan. So, to cut to the chase, the special master
allowed pay increases to take place with a company 74 percent
owned by the taxpayers on the verge of bankruptcy. The night
before bankruptcy they allowed pay raises to take place with
the top executives at that company.
Ms. Romero. And exceeding the 50th percentile.
Mr. Jordan. And exceeding the 50th percentile. So even
exceeding the average in the industry. Amazing.
I have nothing further. I want to thank both our witnesses.
We will follow up, Ms. Romero and Ms. Geoghegan, we think there
has to be a better way to deal with this, so we want to thank
you both. I know I promised two hours and, look at that, only
three minutes past the deadline. So it is not too awful bad.
Thank you. You have both been very good. We appreciate that.
The committee is adjourned.
[Whereupon, at 12:02 p.m., the subcommittee was adjourned.]
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