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US to unveil corporate pay rules US appoints executive paymaster
(about 15 hours later)
The US government is preparing to unveil rules on executive pay for firms that have been bailed out. The US has appointed a "pay czar" to review executive compensation packages for firms that have received government bail-outs.
President Barack Obama will also appoint a "pay czar" who can reject compensation plans at companies getting "exceptional assistance". Kenneth Feinberg, a Washington lawyer, will have the power to set the pay and bonuses of executives at some of the biggest US companies.
The move comes after the US allowed 10 of its largest banks to repay $68bn (£42bn) in government bail-out money. These firms include Bank of America, Citigroup and General Motors.
It also follows the furore over bonuses paid to collapsed insurer AIG earlier this year. The appointment is part of a wider set of recommendations on pay that could affect all publicly traded companies.
AIG was heavily criticised for paying $165m in bonuses after taking government money, with many top executives vilified, after it racked up huge losses and the US government spent $180bn to save the firm. Bonuses awarded to executives at collapsed insurer AIG caused an uproar earlier this year.
On Tuesday, banks including JP Morgan, Morgan Stanley and Goldman Sachs confirmed they had received permission to pay back the money it received from the $700bn government bail-out fund, known as Tarp. Bigger voice
Treasury Secretary Timothy Geithner said the administration would also urge new laws to give shareholders greater say on executive pay and to require corporate compensation committees to be independent from company management.
The financial crisis had many significant causes, but executive compensation practices were a contributing factor Timothy Geithner, US treasury secretary
According to the New York Times, Mr Feinberg is a well-known mediator who came to prominence when tasked with assigning a financial value to lives of victims of the 9/11 attacks to help avoid lawsuits.
The newspaper said he would set the pay for top 25 executives at AIG, Citibank, Chrysler, Chrysler Credit, General Motors, car finance firm GMAC and Bank of America,
For the 80 or so other financial institutions that have received government assistance, Mr Feinberg will develop a compensation structure without setting the exact level of pay.
"The financial crisis had many significant causes, but executive compensation practices were a contributing factor," said Mr Geithner.
"Incentives for short-term gains overwhelmed the checks and balances meant to mitigate against the risk of excess leverage (debt)," he added.
Pay back
The move to closer regulate executive pay comes after the US allowed 10 of its largest banks to repay $68bn (£42bn) in government bail-out money.
These banks, which included JP Morgan, Morgan Stanley and Goldman Sachs, will not be subject to the government's pay czar.
They had passed US government's stress tests in May that assessed whether banks had the money to withstand further shocks to the economy.They had passed US government's stress tests in May that assessed whether banks had the money to withstand further shocks to the economy.
Citigroup and Bank of America are among the banks that did not receive permission and will fall under the purview of the new pay czar, as well as AIG.
Treasury Secretary Timothy Geithner, who along with Mr Obama has criticised Wall Street's compensation schemes, will meet to discuss bank pay along with Securities and Exchange Commission chairman Mary Schapiro and members of the Federal Reserve on Wednesday.
The new rules on executive pay are expected to be announced by the end of the week.