Kenneth Feinberg is the special master for compensation who has ruled over pay at the seven companies that, as he puts it, “owe the taxpayer the most amount of money.” Charles Gasparino, CNBC on-air editor, noted that Feinberg’s roots in Brockton, Mass., put him in the same hometown as boxing great Rocky Marciano, making him a worthy sparring partner for some of America’s leading business executives. What follows is an edited transcript of Feinberg’s remarks at The Directorship Forum in November.
I want everybody to understand just how limited my role is, and why The New York Times, in acknowledging and congratulating me on what I’ve done so far, said that what I’m doing is largely a sideshow. And in a certain respect, it is. Remember, under the law that I am implementing, I have mandatory jurisdiction over the pay of just seven companies. That’s all. The seven companies that owe the taxpayer the most amount of money. And at those seven companies, I only determine the compensation for the top 25 individuals in each of those seven companies: 175 people.
The Reason There’s So Much Interest
So why is there such interest in what I’m doing? I think the reason is, that although the Federal Reserve and the SEC, the FDIC and others, have all to varying degrees prescribed principles to govern executive compensation, I’m apparently the only person who actually has to take those prescriptions and calculate the dollars, the actual compensation for these individuals…and that’s the challenge.
Aside from this process of consensus building, I’m trying at least to understand why the companies claim what they claim. So, we come in, meeting after meeting, on the phone, in person, trying to hammer out [numbers] 1 to 25. That’s how that works.
What the Law Says
For the lawyers in the room, remember: I’m acting pursuant to federal law. There’s a statute, and there are accompanying Treasury regulations. And when you read the law, it is very, very difficult to gain a really clear understanding of what Congress intended when it passed this law.
The special master shall, in determining compensation, make sure—make sure—that the companies thrive so that the taxpayers can get their money back. But the special master shall make sure, in determining compensation, that compensation avoids, quote, excessive risk, unquote.
Then it says, but also make sure that the compensation that is set is grounded in prospective performance criteria that will reward merit and…make sure that in grounding your criteria in performance-based metrics, you do it in a way that will keep people where they are so that they’ll stay at the company, while avoiding excessive risk. I mean, you try and balance all of what Congress and the regulations say, and you come up with a package. And that is the package that you announce. And you announce it by saying, this is what, in my sound discretion, I have concluded will satisfy the objectives articulated in the statute and in the regulations. Could you do it better? I guess maybe you could. You’d certainly do it differently. I’m sure people would do it differently. You want the job? Maybe the Secretary of the Treasury will appoint you.
The Madonna Argument
The argument [that no one sets compensation for] Tiger Woods or Alex Rodriguez or Madonna ignores the fact that with the seven companies I’m dealing with, the taxpayer owns those companies. It’s the taxpayer and the government acting as creditors of those companies that give rise to my mandate.The taxpayer hasn’t bailed out Madonna or Tiger Woods…The fact of the matter is, that the main argument I get in support of what I’m doing, is that these companies survived because of the taxpayer. And the taxpayer has every right, acting through its elected representatives, to seek, to influence the compensation of the debtors—these seven companies. And by law, if and when these companies repay that debt, I am out. I no longer have any mandatory jurisdiction over those companies.
Pay Back the Taxpayer—and Be Gone
I have publicly said, and continue to believe, that the Congress should not expand my jurisdiction. The Congress should not invite me to broaden my compensation determinations. I have said publicly I think that would be unwise. I think what I am doing is, in a very limited sense, trying to influence the debate involving these companies so that the primary objective can be achieved: Pay the taxpayer back. That’s what the Congress really wants—pay us back, and then be gone. Now, to the extent that in making my determinations there will be some interest on the part of corporate boardrooms and corporate America beyond these seven companies—fine, I hope that’s so, but that’s certainly not my primary objective.
His Legacy
I’m asked all the time, well, will Wall Street adopt any of these principles? I get the following answers: “We already are doing it.” “We’ve been doing it for years.’’ “I endorse what you’re doing.” “That’s good, we’ve been doing that.” “That’s exactly what we’re doing.” Or, I hear, “If you’re doing it, we better do it.” Or, I hear, “We’ll take it under advisement. ’’
Now, my mandate does not include what interests you the most: institutional corporate governance. I’m not involved in that, thank goodness. That’s not part of my statutory mandate, and I’m not looking to, again, broaden my role here. I have a very narrow function. I also hear the other argument, which is: It’s all about people. You don’t really need a lot of institutional reform. We’re in enough trouble already without talking about reform. And that what we really need is more independent thinking, stronger-willed people that make these decisions concerning compensation. I don’t know the answer to the questions, but I constantly hear those arguments when people are hoping that I’ll broaden my mandate to include corporate governance well beyond the fixing of compensation under the statute as it now reads.
So that’s a summary of what I’ve been asked to do by the Secretary of the Treasury, under the law as it was written. I do not claim that I have the silver bullet, and that my recommendation—not my recommendations, my determinations—are the only answer. I have carefully considered all of these arguments about how people will leave, how the taxpayer’s money is at risk, how I haven’t gone far enough, that I should be more vindictive. And I can only say that I appear to have sufficiently alienated both Main Street and Wall Street, so I’m doing something right here, I think. Trying to strike that balance as best I can, under the law that was written, and that’s sort of the summary as it now stands.