Treasury Explains Why Only 7 Firms Must Answer To Compensation Czar

The counsel to the U.S. Treasury Secretary explained to lawmakers Thursday why only seven big financial firms that received bailouts will be subject to heightened oversight of their compensation by a new "special master" of compensation.

Responding to questions during a House Financial Services Committee hearing, Gene Sperling told lawmakers that the companies - American International Group Inc. (AIG), Citigroup Inc. (C), Bank of America Corp. (BAC), General Motors Corp. (GMGMQ)., GMAC LLC, Chrysler and Chrysler Financial - will be subject to additional scrutiny because they received extraordinary assistance not offered to other firms. Under new interim rules announced by Treasury Wednesday, those companies will have their executive compensation reviewed by Kenneth Feinberg, who was appointed to oversee such matters at firms that received special assistance under the Troubled Asset Relief Program. Feinberg will have the ability to reject salaries if they are deemed to be excessive.

Other firms that received TARP funds will be subject to some new rules restricting compensation as well, but they will not face any potential caps on salaries the same way these seven firms will.

"Our feeling is some of the things we've done ... are set up to be generally accessible to the financial industry at large and ... we think there is positive public purpose in them participating," said Sperling, referring to the capital purchase program that allowed the Treasury to take an equity stake in banks. "Where a company comes to the U.S. government and the U.S. taxpayer and requires exceptional assistance that is not being offered to their peers that is an exceptional case and that requires us at the Treasury Department to have a stronger fiduciary duty to the taxpayer," he added.

Thursday's hearing on compensation and executive risk-taking came just one day after the Treasury unveiled a broad range of principles on compensation and called for new laws to empower federal regulators to pass rules allowing shareholders to have a non-binding vote on compensation.

Thursday's hearing did not seek to hone in on compensation practices at companies that received TARP funds, but to look ahead at how compensation practices that encourage risk-taking could potentially harm all public companies.

Still, lawmakers took special interest in asking about the Treasury's newly unveiled rules governing compensation restrictions for TARP recipients.

One outspoken Democrat on the committee, Rep. Brad Sherman of California, strongly questioned the Treasury's rationale for forcing only seven companies to answer to the new special master on compensation.

" I would say TARP is an extraordinary departure from free enterprise and even those that got only one infusion ... should be viewed as getting extraordinary help," he said.

-By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634; [e-mail]