The Car Industry Dodges The Pay Czar

Pay czar, Kenneth Feinberg, has been fairly consistent in giving only bare-bones compensation to management at firms that have taken TARP funds. Most executives are making less than $500,000 in base salary. Bonuses are limited, except in the case of some AIG (NYSE:AIG) managers who threatened to leave the insurance company.
GM’s new CFO was able to get around almost all the compensation restrictions set by the government. Chris Liddell, who left the job as CFO of Microsoft (NASDAQ:MSFT) to become chief financial officer and one of the vice-chairmen at GM, will receive a first year pay package worth $6.2 million. Liddell’s base salary will be $750,000 but the substantial part of his compensation is $3.5 million in salary stock and $2 million in restricted shares. The new CEO of GMAC, Michael Carpenter, also got a special dispensation from Feinberg. He will receive a base salary of $950,000.

The case that GM may have made to Feinberg about Liddell is that it needs a financial star in the CFO’s office when the auto company goes public again, if it ever does. An IPO would give taxpayers some of their $50 billion investment in GM back, so skilled hands are critical to the process. GM might also argue that Liddell is the next CEO at the company and will take over when current chairman and interim CEO Ed Whitacre, a former telephone company executive, steps down.

There will be a lot of unhappy executives at the banks that took TARP money or had it forced on them a year ago. Feinberg has been hard on their managers and the argument that they will leave en masse to hedge funds, private equity firms, or foreign banks has not swayed the czar at all.

Feinberg is shrewd. There are a lot of people who want to live in New York City and work for a major money center bank or large insurance company. The pool of talent to operate trading floors and M&A businesses is relatively large. The number of people who will live in Detroit and try to turn around a failing car company is very limited. Feinberg is willing to pay Liddell more than the czar may want to because the number of qualified people interested in being CFO of GM was probably only one.

Douglas A. McIntyre