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The Special Master’s Determinations
for Executive Compensation of Companies
Receiving Exceptional Assistance Under TARP

12-001

January 23, 2012

Office of the special inspector general
For the Troubled Asset Relief Program
1801 L Street, NW, 4th Floor
Washington, D.C. 20220

 

January 23, 2012
MEMORANDUM FOR: Mr. Timothy Massad – Assistant Secretary for
Financial Stability, Department of the Treasury
Ms. Patricia Geoghegan – Acting Special Master,
Office of the Special Master for TARP Executive Compensation,
Department of the Treasury
 

 

FROM:

Ms. Christy L. Romero – Deputy Special Inspector General
for the Troubled Asset Relief Program

SUBJECT:

The Special Master’s Determinations for Executive Compensation of
Companies Receiving Exceptional Assistance Under the Troubled
Asset Relief Program (SIGTARP 12-001)

We are providing this report for your information and use. It discusses the Special Master’s
Determinations for Executive Compensation of Companies Receiving Exceptional Assistance Under the
Troubled Asset Relief Program.
 

The Office of the Special Inspector General for the Troubled Asset Relief Program conducted this
evaluation (engagement code 017) under the authority of Public Law 110-343, as amended, which also
incorporates the duties and responsibilities of inspectors general under the Inspector General Act of
1978, as amended.
We considered comments from the Department of the Treasury when preparing the report. Treasury’s
comments are addressed in the report, where applicable, and a copy of Treasury’s response is included
in Appendix G.
We appreciate the courtesies extended to our staff. For additional information on this report, please
contact Mr. Kurt Hyde, Deputy Special Inspector General for Audit and Evaluation
(Kurt.Hyde@treasury.gov / 202-622-4633), or Ms. Kimberley A. Caprio, Assistant Deputy Special
Inspector General for Audit and Evaluation (Kim.Caprio@treasury.gov / 202-927-8978).

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The Special Master’s Determinations for Executive Compensation of
Companies Receiving Exceptional Assistance Under TARP
 

Summary
When Congress created the Troubled Asset Relief
Program (“TARP”) in 2008, it included some limits on
compensation for employees at companies that
received TARP assistance. After several major
TARP recipients paid employees billions of dollars in
bonuses for 2008, the President, the U.S.
Department of the Treasury (“Treasury”), and
Congress expressed frustration. The President
announced the capping at $500,000 of annual
salaries at companies that had received “exceptional
assistance” under TARP, with any further
compensation to be paid in stock that could not be
cashed in until the company paid back TARP. After
the President’s announcement, Congress passed
legislation under which Treasury created the Office of
the Special Master for TARP Executive
Compensation (“OSM”). Kenneth R. Feinberg served
as the Special Master and was succeeded by Patricia
Geoghegan.
The seven companies that received assistance that
was “exceptional” ‒ because of the amount and the
nature of their bailouts ‒ stood out from the more
than 700 financial institutions in the Capital Purchase
Program. Those seven companies were American
International Group, Inc. (“AIG”), Bank of America
Corporation (“Bank of America”), Citigroup Inc.
(“Citigroup”), Chrysler Financial Services Americas
LLC (“Chrysler Financial”), Chrysler Holding LLC
(“Chrysler”), General Motors Corporation (“GM”), and
Ally Financial Inc.(“Ally”), formerly GMAC, Inc. The
Special Master’s authority was narrowly limited to
setting pay for the Top 25 most highly paid
employees at these companies, and approving
compensation structures, rather than individual pay,
for the next 75 most highly compensated employees.
The Special Master worked under six principles
developed by Treasury: (1) avoiding incentives to
take risks; (2) keeping the company competitive and
retaining and recruiting employees who would
contribute to the company’s success and its ability to
repay TARP; (3) allocating compensation between
salary and incentives; (4) basing pay on performance
metrics; (5) setting compensation consistent with
similar peers at similarly situated companies; and (6)
setting compensation that reflects an employee’s
contribution to the company’s value.
The Office of the Special Inspector General for the
Troubled Asset Relief Program (“SIGTARP”) initiated
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this evaluation of the process designed by OSM to
set pay packages and OSM’s decisions on
compensation for the Top 25 employees at the
companies that received exceptional assistance
under TARP. Under this evaluation, SIGTARP
assessed the criteria used by OSM to evaluate and
make determinations on each company’s executive
compensation and whether OSM consistently applied
criteria to all seven companies.

What SIGTARP Found
SIGTARP found that the Special Master could not
effectively rein in excessive compensation at the
seven companies because he was under the
constraint that his most important goal was to get the
companies to repay TARP. Although generally he
limited cash compensation and made some
reductions in pay, the Special Master still approved
total compensation packages in the millions. Special
Master Feinberg said that the companies pressured
him to let the companies pay executives enough to
keep them from quitting, and that Treasury officials
pressured him to let the companies pay executives
enough to keep the companies competitive and on
track to repay TARP funds. Given OSM’s overriding
goal, the seven companies had significant leverage
over OSM by proposing and negotiating for excessive
pay packages based on historical pay, warning
Special Master Feinberg that if he did not provide
competitive pay packages, top officials would leave
and go elsewhere.
In proposing high pay packages based on historical
pay prior to their bailout, the TARP companies failed
to take into account the exceptional situation they
had gotten themselves into that necessitated
taxpayer bailout. Rather than view their
compensation through the lens of partial Government
ownership, the companies argued that their proposed
pay packages were necessary to retain or attract
employees who were crucial to the company. For
example, Ally officials pushed for high pay, despite
knowing that Feinberg was concerned that a majority
of the company’s Top 25 employees were part of the
problem that resulted in the need for a bailout. In
2009, AIG proposed cash raises for several of its
Top 25 employees and the ability to sell stock salary
immediately.
Under conflicting principles and pressures, despite
reducing some pay, the Special Master approved
multimillion-dollar compensation packages for many
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The Special Master’s Determinations for Executive Compensation of
Companies Receiving Exceptional Assistance Under TARP
 
of the Top 25 employees, but tried to shift them away
from large cash salaries and toward stock. OSM
approved pay packages worth $5 million or more
over the 2009 to 2011 period for 49 individuals. OSM
set pay using what Feinberg called “prescriptions”
that he developed, including that total compensation
would be set at the 50th percentile for similarly
situated employees, and that cash salaries should
not exceed $500,000, except for good cause.
Although OSM developed general prescriptions,
OSM did not have any established criteria at the
beginning of the process for applying those
prescriptions.
Some companies pushed back on OSM by claiming
that their compensation should be higher than the
50th percentile. The companies’ beliefs may relate to
what has been called the “Lake Wobegon Effect,”
named after radio host Garrison Keillor’s fictional
hometown where “all the children are above
average.” Companies also proposed that their
employees be paid cash salaries higher than
$500,000, claiming that the employees were crucial.
For 10 employees in 2009, and 22 employees in
2010 and 2011, GM, Chrysler Financial, Ally, and
AIG convinced OSM to approve cash salaries greater
than $500,000. With the exception of Bank of
America’s retiring CEO, the Special Master approved
cash salaries in excess of $500,000 for the CEO of
each company who asked for a higher salary, and
approved millions of dollars in CEO stock
compensation.
AIG’s proposed compensation for its Top 25
employees did not reflect the unprecedented nature
of AIG’s taxpayer-funded bailout and the fact that
taxpayers owned a majority of AIG. The proposed
AIG compensation was excessive. In 2009, AIG
wanted cash salary raises ranging from 20% to 129%
for one group of employees and from 84% to 550%
for another group. AIG proposed high cash salaries,
even though some of these employees would also be
paid significant retention payments. Feinberg told
SIGTARP that AIG was anti-stock salary and wanted
to pay employees in cash. Feinberg told SIGTARP
that in his 2009 discussions with AIG, AIG believed
that its common stock was essentially worthless.
Feinberg told the Congressional Oversight Panel
(“COP”) that AIG common stock “wasn’t worth
enough to appropriately compensate top officials.”
Feinberg told SIGTARP that he was pressured by
other senior Treasury officials and was told to be
careful, that AIG owed a fortune, and that Treasury
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did not want it to go belly up. Treasury told him that
paying salaries and grandfathered awards in stock
rather than cash would jeopardize AIG. Feinberg
said that Treasury officials felt those amounts were
relatively small compared to the Government’s
exposure in AIG. However, Feinberg said that no
one trumped his decisions.
In 2009, OSM approved total compensation of cash
and stock of more than $1 million each for five AIG
employees including a $10.5 million pay package for
AIG’s new CEO that included a $3 million cash
salary. OSM approved compensation ranging from
$4.3 million to $7.1 million each for four AIG
employees who that year were also scheduled to
receive cash retention awards of up to $2.4 million.
OSM was tough on employees of AIG Financial
Products (“AIGFP”), the unit whose losses
contributed to the need for Government intervention.
For five AIGFP employees who were scheduled to
receive retention awards of up to approximately
$4.7 million, OSM froze their salaries at 2007 levels
and gave them no stock. In 2010, OSM also cut
AIG’s proposed salaries, but compared to 2009,
approved much larger compensation packages for
AIG’s Top 25 employees, despite the fact that 18 of
these employees were scheduled to receive
significant retention awards and other payments. In
2010, OSM approved 21 of AIG’s 22 employees to
receive between $1 million and $7.6 million, with 17
of those pay packages exceeding $3 million. OSM
approved cash salaries of more than $500,000 for
five employees, and cash salaries ranging from
$442,874 to $500,000 for 12 employees. OSM
approved all but three of AIG’s Top 25 employees to
receive stock salary ranging from $1.3 million to
$5.1 million each. OSM generally approved these
same pay packages for 2011 for AIG, which included
the CEO’s same compensation as in earlier years,
compensation packages of $8 million each for two
employees, compensation packages of $7 million
each for two employees, and compensation
packages of $5 million to $6.3 million each for seven
employees.
OSM’s pay determinations are not likely to have a
long lasting impact at the seven TARP exceptional
assistance companies or other companies. OSM’s
decisions had little effect on Citigroup and Bank of
America, which exited TARP, in part to escape OSM
compensation restrictions. Once out of TARP,
salaries and bonuses climbed. Today, only AIG, GM,
and Ally remain subject to OSM’s review. CEOs at
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The Special Master’s Determinations for Executive Compensation of
Companies Receiving Exceptional Assistance Under TARP
 
AIG and GM told SIGTARP that they would not
maintain OSM’s practices once their company exits
TARP. OSM has had little ability to influence
compensation practices at other companies outside
of the seven. Feinberg told SIGTARP that the longterm impact will likely come from regulators.
While historically the Government has not been
involved in pay decisions at private companies, one
lesson of this financial crisis is that regulators should
take an active role in monitoring and regulating
factors that could contribute to another financial
crisis. Treasury Secretary Timothy F. Geithner
testified before COP that executive compensation
played a material role in causing the crisis because it
encouraged excessive risk taking.
As a nation, we are not out of the woods because
many former TARP companies remain as
systemically important financial institutions (“SIFIs”).
These companies have a responsibility to reduce risk
taking that could trigger systemic consequences,
including excessive cash compensation and other
compensation not tied to long-term performance.
The Dodd-Frank Wall Street Reform and Consumer
Protection Act requires regulations on executive
compensation and other regulations for SIFIs that
may force these companies to change their
compensation practices. The regulators’ strength
and leadership in the area of executive compensation
are critical. Taxpayers are looking to the regulators
to protect them so that history does not repeat itself.

What SIGTARP Recommended
In this report, SIGTARP recommended that the Office
of the Special Master of TARP Executive
Compensation: substantiate each exception to the
$500,000 pay limit that is requested and whether the
requests demonstrate or fail to demonstrate “good
cause;” better document its use of market data in its
calculations; and develop more robust policies,
procedures, or guidelines to help ensure that its pay
determination process and its decisions are
evenhanded.
In commenting on a draft of this report, OSM agreed
with the first two recommendations and with the
importance of the third recommendation, stating that
it will focus on how it can further develop policies,
procedures, and guidelines. A fuller discussion of
OSM’s response can be found in the Management
Comments section of this report.
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Table of Contents
Introduction .................................................................................................................................................... 1
Background .................................................................................................................................................... 3
Congress Passed Legislation Limiting TARP Executive Compensation ................................................... 4
Creation of the Office of the Special Master.............................................................................................. 5
OSM’s Executive Compensation Determination Process .............................................................................. 8
OSM Determined Pay for the Top 25 Employees in a Three-Step Methodology ..................................... 9
Getting Out from Under the Special Master’s Purview Was a Factor for Repayment of TARP
Exceptional Assistance by Bank of America and Citigroup ................................................................. 11
SIGTARP Found that OSM’s Methodology and Criteria Were Not Documented Until After the
Fact, and that Documentation Lacked Detail ........................................................................................ 12
Analysis of the Special Master’s Executive Compensation Determinations ............................................... 13
The Special Master Allowed Some Employees To Be Paid Cash Salaries of more than $500,000 ........ 16
The Special Master Consistently Approved Cash Salaries in Excess of $500,000 for the CEO of
Each Company Who Asked, with the Exception of Bank of America’s CEO, Who Had
Announced His Retirement ................................................................................................................... 18
The Special Master Was Inconsistent in Approving Cash Salaries in Excess of $500,000 ..................... 21
With Limited Justifications, OSM Approved Cash Salaries of more than $500,000 for
Employees of AIG, GM, Chrysler Financial, and Ally ........................................................................ 22
The Special Master’s Criteria of Using the 50th Percentile Pay Level for Similarly Situated
Employees and the Selection of Peer Groups Were Not Based on Substantive Due Diligence ........... 23
SIGTARP Was Unable To Analyze Whether the Special Master Consistently Applied the 50th
Percentile Criteria Because OSM Did Not Maintain Adequate Documentation .................................. 25
AIG Pushed for Excessive Raises in Cash Salaries for Its Top 25 Employees and Pushed Against
Pay in AIG Stock ...................................................................................................................................... 26
Before the Creation of OSM, AIG Faced Congressional and Public Anger After Paying Millions
of Dollars in Retention Awards to AIGFP Employees Post-Bailout .................................................... 26

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AIG Employees Declined Request To Restructure Upcoming Retention Awards Under PreRecovery Act Employment Contracts .................................................................................................. 28
In 2009, AIG Proposed Excessive Cash Raises for Its Top 25 Employees and Proposed Treating
Heads of AIG Subsidiaries as CEOs ..................................................................................................... 29
The Special Master Set Salaries for AIG Top 25 Employees in 2009 ..................................................... 30
AIG Received Consideration for a Different Form of Stock Salary for 2009 ......................................... 32
AIG and Treasury Officials Created a Phantom (Basket) Stock for Six AIG Employees ....................... 33
The Special Master Changed the Form of Stock Compensation for Six AIG Employees from
Phantom Stock to AIG Common Stock ................................................................................................ 36
In 2010, AIG Proposed Cash Salary Increases and Again Pushed Back Against Executive Pay in
AIG Common Stock, Requesting Instead an Alternative Form of Stock Salary .................................. 37
In 2011, AIG Proposed Cash Salaries in Excess of $500,000 for Five Employees and Proposed
Compensation in the Form of AIG Common Stock ............................................................................. 40
Impact of the Special Master’s Determinations on the Exceptional Assistance Recipients ........................ 42
Maintaining the Special Master’s Framework ......................................................................................... 42
Companies’ Ability To Recruit and Retain .............................................................................................. 43
OSM’s Limited Effect on Citigroup and Bank of America ..................................................................... 45
Beyond TARP: Dodd-Frank Act’s Executive Compensation Provisions ................................................ 46
Conclusions and Recommendations............................................................................................................. 47
Recommendations ........................................................................................................................................ 53
Management Comments ............................................................................................................................... 54
Appendix A – Scope and Methodology ....................................................................................................... 57
Appendix B – Principles of Treasury’s June 2009 IFR ............................................................................... 59
Appendix C – TARP Expenditures to Seven Companies That Received Exceptional Assistance .............. 61
Appendix D – AIG’s Government Assistance and Recapitalization Plan To Exit TARP ........................... 62
Appendix E – Acronyms and Abbreviations................................................................................................ 64
Appendix F – Evaluation Team Members ................................................................................................... 65
Appendix G – Agency Comments ............................................................................................................... 66

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The Special Master’s Determinations for Executive Compensation of
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This report has cleared SIGTARP’s Office of General Counsel disclosure review process and
information determined to be restricted from public release has been redacted from this report.
Redaction Legend: (b)(4) – 5 U.S.C. § 552(b)(4), Trade Secrets, Commercial or Financial Information.

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OF COMPANIES RECEIVING EXCEPTIONAL ASSISTANCE UNDER TARP

1

Introduction
In the creation of the Troubled Asset Relief Program (“TARP”) in October 2008,
Congress provided limits on compensation of employees at companies that
received TARP assistance. In early 2009, after several major TARP recipients
paid employees billions of dollars in bonuses, the President, the U.S. Department
of the Treasury (“Treasury”), and Congress expressed frustration. Treasury
Secretary Timothy F. Geithner said that executive compensation played a material
role in causing the financial crisis because it encouraged excessive risk taking.
The President announced that top executives at companies that had received
exceptional assistance 1 under TARP would have cash salaries capped at $500,000
with any further compensation paid in stock that could not be cashed in until the
company paid back and exited TARP. The President also announced prohibitions
on excessive severance packages and limitations on perquisites. Shortly
thereafter, Congress passed economic stimulus legislation, which was amended in
the Senate after the President’s announcement to add more strict limitations on
compensation for TARP recipients. On June 10, 2009, Treasury issued rules to
implement the legislation, and those rules created the Office of the Special Master
for TARP Executive Compensation (“OSM”).2 Kenneth R. Feinberg served as
the Special Master until he resigned on September 10, 2010, and was succeeded
by Patricia Geoghegan as Acting Special Master.
The Special Master’s authority to set pay was narrowly focused on executive
compensation at seven companies that received exceptional assistance under
TARP.3 These seven companies stood out from the more than 700 financial
institutions that received TARP funds under the Capital Purchase Program. The
amount and nature of their bailouts were considered “exceptional.” OSM’s
authority is primarily limited to setting pay for the five senior executive officers
(“SEOs”) and the next 20 most highly compensated employees (together known
as the “Top 25”) at each of the seven exceptional assistance recipients, and
approving compensation structures (rather than setting individual pay packages)
for certain executive officers and the next 75 most highly compensated employees
(“Top 26-100”).4 Special Master Feinberg testified to Congress that he had
“no legal authority to make final determinations pertaining to executive
compensation for any companies other than these seven,” and that “even as to
1

Companies that participated in the following programs are classified as receiving exceptional assistance under TARP:
Bank of America and Citigroup, participants in the Targeted Investment Program (“TIP”); AIG, the only participant in
the Systemically Significant Failing Institutions Program; and GM, Chrysler, and their financing companies, Ally
Financial (formerly GMAC), and Chrysler Financial, participants in the Automotive Industry Financing Program.
2
The economic stimulus legislation did not contain a $500,000 cash salary limitation, nor did the Treasury rules.
3
Appendix C provides a summary of the TARP assistance provided to those companies.
4
OSM was also tasked with conducting “look-back” reviews of bonuses, retention awards, and other compensation paid
to the Top 25 employees at TARP recipients before February 17, 2009, and, where contrary to the public interest, “seek
to” negotiate reimbursements to the Government. OSM found that no awards were contrary to the public interest and
therefore did not “seek to” negotiate reimbursement of any of the awards.
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2

those seven, my role in regulating pay was limited to the Top 25 as a mandatory
matter.”
This report focuses on OSM’s determinations on pay for the Top 25 at the
following seven companies:








American International Group, Inc. (“AIG”)
Bank of America Corporation (“Bank of America”)
Citigroup Inc. (“Citigroup”)
Chrysler Financial Services Americas LLC (“Chrysler Financial”)
Chrysler Holding LLC (“Chrysler”)
General Motors Corporation (“GM”)
Ally Financial Inc. (“Ally”), formerly GMAC, Inc.

Of those seven, three are still in TARP and under OSM:
 AIG, with 77% Government ownership;
 GM, with 32% Government ownership; and
 Ally, with 74% Government ownership.5
The Office of the Special Inspector General for the Troubled Asset Relief
Program (“SIGTARP”) initiated an evaluation of the process designed by OSM to
set pay packages and OSM’s decisions on compensation for the Top 25 at the
companies that received exceptional assistance under TARP. Under this
evaluation, SIGTARP assessed the criteria used by OSM to evaluate and make
determinations on each company’s executive compensation and whether OSM
consistently applied criteria for the determinations made in 2009, 2010, and 2011.
SIGTARP conducted this evaluation between November 2009 and
December 2011, and in accordance with the “Quality Standards for
Inspection and Evaluation” established by the Council of the Inspectors
General on Integrity and Efficiency. For a discussion of the evaluation’s
scope and methodology, see Appendix A.

5

Percentages for the three companies are as of December 31, 2011.

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3

Background
In creating TARP through the Emergency Economic Stabilization Act of 2008
(“EESA”), as amended, Congress explicitly provided limits on executive
compensation at TARP recipient companies and authorized the Secretary of the
Treasury to set standards for executive compensation. EESA’s restrictions have
changed over time by regulations, amendments, and notices.6
In early 2009, the press reported that several TARP recipients paid out billions of
dollars in bonuses to executives and employees.7 The bonuses were criticized by
the Comptroller of New York. On January 28, 2009, the Comptroller of
New York announced that for 2008, Wall Street firms (including TARP
recipients) paid $18.4 billion in bonuses to employees working in New York City
and said, “There needs to be greater transparency and accountability in the use of
these [TARP] funds…taxpayers ought to know if these funds were used to buy
corporate jets.” The press reported that the Comptroller urged the Administration
to examine the issue.8 The President called these bonuses “shameful.”9
On February 4, 2009, the President announced a $500,000 cap on salaries for top
executives of TARP companies that received exceptional assistance, with any
further compensation paid in stock that could not be cashed out until TARP was
repaid. The President also announced that the companies would have to disclose
publicly and justify all of the perks bestowed upon executives, and that the U.S.
Government (“Government”) was putting a stop to massive severance packages.
The President also said:
“In order to restore trust, we’ve got to make certain that taxpayer
funds are not subsidizing excessive compensation packages on
Wall Street. We all need to take responsibility. And this includes
executives at major financial firms who turned to the American
people, hat in hand, when they were in trouble, even as they paid
themselves customary lavish bonuses. As I said last week, this is
the height of irresponsibility. It’s shameful. And that’s exactly the
6

On October 14, 2008, Treasury announced TARP executive compensation rules focused on limiting
compensation tied to risk, prohibiting golden parachutes, and providing that under certain conditions bonuses
may have to be repaid. It also limited companies from taking a tax deduction for salaries to senior executive
officers in excess of $500,000.
7
White, Ben, “What Red Ink? Wall Street Paid Hefty Bonuses,” The New York Times, 01/28/2009,
http://www.nytimes.com/2009/01/29/business/29bonus.html, accessed 12/06/2011.
8
White, Ben, “What Red Ink? Wall Street Paid Hefty Bonuses.” See footnote 7 above for further details.
9
In late July 2009, New York Attorney General Andrew Cuomo reported the original nine TARP recipients
paid approximately $32.61 billion in 2008 bonuses: Citigroup paid $5.33 billion, Bank of America paid
$3.30 billion, Merrill Lynch paid $3.60 billion, Goldman Sachs paid $4.82 billion, JPMorgan Chase paid
$8.69 billion, Morgan Stanley paid $4.48 billion, Wells Fargo & Co. paid $977.50 million, Bank of New York
Mellon paid $945 million, and State Street Corp. paid $469.97 million.
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kind of disregard of the costs and consequences of their actions
that brought about this crisis…what gets people upset – and
rightfully so – are executives being rewarded for failure, especially
when those rewards are subsidized by U.S. taxpayers, many of
whom are having a tough time themselves.”
That same day, Treasury issued guidance proposing various limitations on
compensation arrangements.10

Congress Passed Legislation Limiting TARP Executive
Compensation
Congress expressed its frustration through legislation. At the time of the
President’s announcement, Congress was considering an economic stimulus bill
that had passed in the U.S. House of Representatives. The bill as passed did not
contain TARP executive compensation restrictions. On February 2, 2009, the
Senate began consideration of the bill, which became the American Recovery and
Reinvestment Act of 2009 (the “Recovery Act”). On February 4, 2009, Senator
Ron Wyden and Senator Olympia Snowe offered an amendment to the Recovery
Act bill requiring TARP recipients to repay cash bonuses in excess of $100,000.
In his statement on the Senate floor, Senator Wyden stated, “Last week,
Americans were horrified to hear the news that Citigroup and other companies
receiving taxpayer money from the Troubled Asset Relief Program were paying
their employees billions and billions of dollars in bonuses.” Although the
Wyden-Snowe amendment did not make it into the final Act, Senator Christopher
Dodd proposed an amendment that he described as applying stronger restrictions
on executive compensation for TARP recipients. Senator Dodd, detailing the
restrictions on the Senate floor, stated, “This will encourage the companies to use
the TARP funds for the purposes they were intended and assure the American
taxpayers that their funds are being used properly.”
The Recovery Act, enacted on February 17, 2009, amended EESA. The Recovery
Act restricts bonuses for one to 25 employees, among other actions, depending on
the amount of TARP investment, unless paid in restricted stock that did not
exceed one-third of total compensation. The Recovery Act’s bonus prohibition
excludes payments required to be paid pursuant to written employment contracts
executed on or before February 11, 2009. The Recovery Act prohibits golden
10

The proposed guidance applied to all TARP companies; it proposed more strict executive compensation rules for
TARP companies that received exceptional assistance. For the seven exceptional assistance TARP companies, the
guidance proposed a $500,000 cash salary cap and bonuses only in restricted stock; enhanced clawback of bonus
provisions; prohibited golden parachutes for the top five senior officers; and limited golden parachutes for the next
25 executives to one year’s salary. The guidance also proposed that each company develop a luxury expenditure
policy for perquisites such as airplane use, office renovations, parties, and conferences.

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parachutes for senior executive officers and the next five most highly
compensated employees (“Top 10”), requires TARP companies to have “say on
pay” through a non-binding shareholder vote on compensation, and provides that
Top 25 employees pay back bonuses if based on criteria later proven to be
materially inaccurate.
In March 2009, Congress and the public were angered that AIG had paid
$168 million in retention awards to around 400 employees of its Financial
Products unit (“AIGFP”).11 The press reported that people were picketing the
homes of AIG executives and that some employees were threatened.12 Congress
held hearings on proposals to tax the retention awards, and AIG asked the
employees to return voluntarily 50% of the awards.
On June 10, 2009, Treasury announced the Interim Final Rule (“IFR”), which
implemented the Recovery Act and consolidated all TARP executive
compensation restrictions into a single rule. The IFR also prohibited employees
from fully transferring restricted stock while the company is in TARP. The
compensation restrictions generally applied to a TARP recipient’s SEOs and next
most highly compensated employees.

Creation of the Office of the Special Master
Through the IFR, Treasury created OSM, headed by the Special Master, but gave
it limited scope. OSM’s powers were generally limited to setting pay packages
for the Top 25 employees and to reviewing compensation structures for the
Top 26-100 employees of the seven companies that received exceptional
assistance under TARP. In accordance with the IFR, under a “safe harbor,” OSM
approval was not required for proposed annual compensation structures of no
more than $500,000 (apart from long-term restricted stock, as defined in the IFR)
for employees in the Top 26-100. The Special Master must determine whether
compensation structures and payments are inconsistent with EESA or are
otherwise contrary to the public interest. In doing so, the Special Master must
apply six principles and use discretion to determine the appropriate weight or
relevance of those principles depending on the facts and circumstances or when
principles conflict. The circumstances may include the role of the employee, the
situation of the TARP recipient within the marketplace, and the amount and type
of TARP assistance. In summary, the IFR principles say:
11

For further details on AIG’s executive compensation structure, see SIGTARP’s report “Extent of Federal Agencies’
Oversight of AIG Compensation Varied, and Important Challenges Remain,” issued on October 14, 2009.
12
One example is “Protestors visit lavish homes of AIG execs,” MSNBC, 03/21/2009,
http://www.msnbc.msn.com/id/29815906/ns/business-stocks_and_economy/t/protesters-visit-lavish-homes-aig-execs/,
accessed 12/10/2011.

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

Risk – the compensation structure should avoid incentives to take unnecessary
or excessive risks that could threaten the value of the TARP recipient;



Taxpayer Return – the compensation amount and structure 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
success and, ultimately, its ability to repay TARP obligations;



Appropriate Allocation – the compensation structure should appropriately
allocate compensation between components such as salary and short-term and
long-term incentives;



Performance-Based Compensation – an appropriate portion of the
compensation should be based on performance metrics over a relevant period;



Comparable Structures and Payments – the compensation amount and
structure should be consistent with those for persons in similar positions or
roles “at similar entities that are similarly situated;” and



Employee Contribution to TARP Recipient Value – the compensation
structure and amount should reflect the current or prospective contributions of
an employee to the value of the TARP recipient.

Special Master Feinberg told SIGTARP that these criteria are inherently
inconsistent because of conflicting goals and company-specific circumstances.
He explained that the criteria intended for institutions to remain competitive and
to promote employee retention but do not allow for compensation structures
similar to those of some market participants because they are deemed to be
excessive and not performance based over the long term. On October 21, 2010,
Feinberg testified before the Congressional Oversight Panel (“COP”) that the
clear direction given to him was that the most important goal was to get these
seven companies to repay TARP. He also testified, “Congress felt that the single
most important thing I could do is get those seven companies to repay the
taxpayer…Secretary Geithner made that clear. Congress made that clear. The
Administration made that clear. And we succeeded, with three of those
companies already repaying.”
Feinberg told SIGTARP that political perception “very much” played a role in his
decisions. He said he was mindful of Congress’ intent, the oversight that
Congress would conduct, and that U.S. House of Representatives Committee on
Financial Services Chairman Barney Frank and U.S. Senate Banking, Housing,
and Urban Affairs Committee Chairman Christopher Dodd had spoken frequently
on the Congressional goals and intent.

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Feinberg said he was pressured by TARP companies and Treasury officials. He
told SIGTARP that TARP companies placed pressure on him to let the companies
pay executives enough to keep them from quitting, and that Treasury officials
placed pressure on him to let the companies pay executives enough to ensure
companies would remain competitive and be able to repay TARP funds. Feinberg
testified to the House Committee on Financial Services, “The tension between
reining in excessive compensation and allowing necessary compensation is, of
course, a very real difficulty that I have faced and continue to face in making
individual compensation determinations.” Feinberg told SIGTARP that every day
he was pressured to soften his stance and that Government officials reminded him
that the companies had large obligations to repay the taxpayers. On
October 21, 2010, Feinberg told COP, “…we heard over and over again that if we
didn’t provide competitive pay packages, those top officials would leave and go
elsewhere…they might even go to China. Everybody was going to go to China to
work if these companies lost these officials. They’re still there. Eighty-five
percent of these specific individuals whose pay by statute we regulated are still
there.”
For one company (AIG), Feinberg told SIGTARP that he was pressured by other
Treasury officials, specifically the Office of Financial Stability (“OFS”), which
administers TARP, that he needed to be careful, that AIG owed Treasury a
fortune and Treasury did not want it to go belly up.13 Despite this pressure,
Feinberg told SIGTARP that no one trumped his decisions.
OSM was aware of media and public attention, although Feinberg told COP that
there was a relative lack of interest from the public when it came to GM and
Chrysler – almost all of the media and public attention was on Bank of America,
Citigroup, and AIG. Part of that had to do with how much higher compensation
was at Wall Street companies, relative to GM and Chrysler, which he described as
like Earth and Mars. He said “… I think … the top three people of the 25 at
Citigroup got more compensation before we arrived than all 25 people at GM,
which was, to me, a little bit astounding.”

13

AIG owed the Government $69.8 billion at that time. For details regarding the Government’s investment in AIG and
the firm’s recapitalization plan, see Appendix D.

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OSM’s Executive Compensation Determination
Process
The companies determined their Top 25 employees per IFR specifications that
this group must include the five publicly disclosed SEOs (chief executive officer
(“CEO”), chief financial officer (“CFO”), and the next three most highly
compensated employees), and the next 20 most highly compensated employees.
Because the IFR includes in the Top 25 any of those employees who were
employed on the first day of the year but who left before OSM issued its
determination on pay packages, some of the companies under OSM had fewer
than 25 employees subject to OSM’s pay package determinations. This
circumstance most affected AIG and Bank of America, each of which had only 13
employees out of the Top 25 remaining for OSM’s 2009 determinations (see
Table 1).
TABLE 1

NUMBER OF TOP 25 EMPLOYEES WHO RECEIVED PROSPECTIVE PAY DETERMINATIONS
Company

2009
(Based on 2008
Compensation)

2010
(Based on 2009
Compensation)

2011
(Based on 2010
Compensation)

AIG

13

23

23

Bank of America

13

N/A

N/A

Citigroup

21

N/A

N/A

Chrysler

25

24

25*

Chrysler Financial

22

25

N/A

GM

20

25

25

23

24

25

137

121

98

Ally
Total

Note: *Chrysler lost its designation as an exceptional assistance recipient on July 21, 2011, when Treasury sold its remaining
stake in the company to Fiat. However, that transaction occurred after the Special Master issued Chrysler a
determination letter on April 1, 2011, covering 25 employees.
Source: SIGTARP review of OSM determinations.

Annually, the companies proposed pay packages for the Top 25 employees. In
August 2009, the seven companies proposed 2009 pay levels for the Top 25
employees. On October 28, 2010, Feinberg testified to the U.S. House of
Representatives Committee on Oversight and Government Reform that six of the
seven companies’ compensation proposal submissions would result in payments
contrary to the Public Interest Standard, and should, therefore, be rejected.14
Special Master Feinberg testified that the companies requested excessive cash
salaries and bonuses; stock compensation that could be immediately or quickly
14

The seventh company was Chrysler Financial.

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redeemed; “perks” such as private airplane transportation, country club dues, and
golf outings; excessive levels of severance and retirement benefits; and
compensation that did not take into account future cash awards already scheduled
to be paid based on contracts that existed prior to current compensation
regulations.
OSM had many discussions with the companies regarding their proposed pay
packages. However, one company stood out. Feinberg told SIGTARP that in
2009, 80% of his headaches came from AIG. AIG was the only one of the seven
where other senior Treasury officials intervened in OSM’s process. AIG was also
the company that had received the biggest Government bailout and, as of
January 14, 2011, the Government owned approximately 92% of the company.

OSM Determined Pay for the Top 25 Employees in a Three-Step
Methodology
Using the principles laid out in the IFR and what Feinberg called “prescriptions”
developed by OSM, OSM established a three-step methodology to set pay, which
included cash salary, stock salary, and long-term restricted stock, for the Top 25
employees at each of the seven TARP exceptional assistance recipients.
First, OSM sets total compensation on the OSM prescription that it should
generally not exceed the 50th percentile of total compensation for similarly
situated employees. The first step in the formula was to determine each
employee’s total compensation by basing it on the 50th percentile compensation
level for the employee’s position, scope, and responsibilities relative to what their
peers in comparable positions are earning. To determine the 50th percentile,
OSM uses the U.S. Mercer Benchmark Database and Equilar’s Total
Compensation Report15 to determine whether the market data submitted by the
seven TARP companies were reasonable.16
Second, OSM sets cash salaries using an OSM prescription that generally
salaries should not exceed $500,000 per year, except for good cause shown.
OSM determines cash salary by assessing the market data, the prior years’
compensation, the importance of the position and individual, the risk that an
15

Equilar’s Total Compensation Report contains data for the top five positions disclosed publicly. Mercer’s
Benchmark Database provides compensation data categorically, by asset class, industry, and types of
positions.
16
In 2009, OSM also relied on the advice of two academic experts, Lucian A. Bebchuk, the William J.
Friedman & Alicia Townsend Friedman Professor of Law, Economics, and Finance, and Director of the
Program on Corporate Governance, Harvard Law School; and Kevin J. Murphy, the Kenneth L. Trefftzs
Chair in Finance in the Department of Finance and Business Economics at the USC Marshall School,
professor of business and law in the USC Law School, and professor of economics in the USC Economics
Department.
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employee would leave, and any unique circumstances. While OSM staff told
SIGTARP that the $500,000 cash salary limit was based partially on
President Obama’s statement that salaries should be limited to $500,000, the
Special Master said that he was not influenced by the President’s statements on
salary. The decision to limit cash salaries to $500,000 and to increase the
proportion of compensation in the form of stock, Feinberg said, was his decision
to strike a balance between reducing excessive risk and providing enough
compensation to keep employees’ “skin in the game.” In testimony before COP,
Feinberg stated that OSM came up with the $500,000 figure based on the
packages submitted by companies, empirical evidence, and a sense of what
Congress and Treasury intended in the statute and regulations. In testimony
before the House Committee on Financial Services, Feinberg said that he made
exceptions to that limit for “good cause,” and he told SIGTARP that those
exceptions varied by company.
OSM officials told SIGTARP that in some instances, the $500,000 cash salary cap
resulted in an increase in base salary for some employees. For example, OSM
restructured pay for some Citigroup employees who were paid cash salaries of
approximately $200,000 and received substantial cash bonuses. OSM officials
told SIGTARP that they felt that if they limited those employees to the same
salary with the bonus paid only in stock that was not available for a number of
years, the employees would not be appropriately compensated and would leave.
OSM officials told SIGTARP that to ensure employee retention, they made some
concessions on cash salary, but weighted pay more heavily on long-term
performance through stock salary. In other instances, OSM adjusted an
employee’s salary to just below $500,000. GM officials told SIGTARP that OSM
would adjust some employees’ salaries so that they cascaded to just under
$500,000, such as $495,000, $490,000, $485,000, and $480,000.
Third, OSM determines how much of the remaining compensation would be
paid in stock salary with a value dependent on the company’s future success
and long-term restricted stock. OSM determined the amount of stock salary
and long-term restricted stock by deducting the cash salary (generally up to
$500,000) from total compensation. The Recovery Act limited long-term
restricted stock to one-third of the employee’s total pay. Accordingly, OSM
calculated the amount of long-term restricted stock, and the remainder of the
compensation package was stock salary.
In testimony to the House Committee on Oversight and Government Reform, the
Special Master said that he used stock salary to encourage senior executives to
remain at the companies to maximize their benefit from the profitability of the
company. Although the stock vests each pay cycle, it is generally redeemable
only in three equal annual installments, beginning on the second anniversary of
the grant date.

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To tie individual compensation to long-term company success, OSM used longterm restricted stock contingent on the employee achieving specific performance
criteria.17 Long-term restricted stock does not fully vest until the repayment of
TARP financial assistance.18 OSM officials told SIGTARP that companies were
very hesitant to pay long-term restricted stock because there was no certainty that
some of the companies would ever be free of TARP.
After using the three-step process to determine pay packages for the Top 25, OSM
communicated those packages in annual determination letters sent to the
companies and published online on October 22, 2009, March 23, 2010, and
April 1, 2011.19 The 2009 determinations by the Special Master set the process
that OSM would use in the future for the 2010 and 2011 determinations. Four of
the companies have repaid TARP’s exceptional assistance.20 Today only AIG,
GM, and Ally remain under OSM’s exceptional assistance rules.

Getting Out from Under the Special Master’s Purview Was a
Factor for Repayment of TARP Exceptional Assistance by
Bank of America and Citigroup
In December 2009, Bank of America and Citigroup exited TARP’s Targeted
Investment Program (“TIP”), one of the exceptional assistance programs, citing a
desire to be outside the jurisdiction of OSM. SIGTARP’s September 29, 2011,
audit report “Exiting TARP: Repayment by the Largest Financial Institutions,”
reported that Citigroup’s CEO told SIGTARP that the desire to escape
management compensation restrictions was a factor motivating Citigroup’s desire
to exit TARP. The report also says that Sheila Bair, then-Chairman of the Federal
17

The Special Master said that each company’s independent compensation committee had to have an active role
in both the design of incentives and the review and measurement of performance metrics.
18
For the stock to vest, employees must provide services to the TARP recipient for at least two years after the
date the stock is granted. The stock can become transferable, or payable in the case of restricted stock units
in 25% installments for each 25% installment of TARP funds repaid.
19
OSM also issued supplemental determinations in response to pay proposals for new CEOs for AIG, Ally,
Chrysler, and GM, a new CFO for GM, and a new AIG Chief Risk Officer. Two supplemental
determinations were in response to official reconsideration requests – one submitted by AIG in relation to its
2009 Top 25 determination and the other submitted by GM in relation to its 2010 determination over the
structure of compensation of GM’s Top 26-100 employees. OSM issued a supplemental determination to
GM in response to GM’s request for approval to replace long-term restricted stock grants with stock salary
for 2009 for two of its Top 25 employees. On December 20, 2010, OSM issued a supplemental
determination to Chrysler in relation to two employees who decided not to retire and who were seeking
grants of stock salary and long-term restricted stock. All determinations and supplemental determinations are
available online at www.financialstability.gov.
20
Bank of America and Citigroup repaid TARP’s exceptional assistance in December 2009. In May 2010,
Chrysler Financial repaid TARP. In July 2011, Chrysler exited TARP when Treasury sold its remaining
ownership interest in Chrysler to Fiat.
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Deposit Insurance Corporation, worried that Citigroup’s request to terminate its
asset guarantee, another form of assistance it received under TARP, was “all
about compensation.”
Two of Bank of America’s former executives also told SIGTARP that executive
compensation was an important factor in the firm’s decision to repay TARP. One
of the executives told SIGTARP that executive compensation was a major factor
behind the firm’s repayment decision and that the company did everything
possible to get out from under the executive compensation rules. Special Master
Feinberg testified before COP that one of the things he learned as Special Master
was the desire of these companies to get out from under Government regulation.
Specifically he was referring to Citigroup and Bank of America wanting to get out
from under TARP and OSM’s restrictions.

SIGTARP Found that OSM’s Methodology and Criteria Were Not
Documented Until After the Fact, and that Documentation Lacked
Detail
Although OSM created general “prescriptions,” OSM did not at the beginning of
the process have pre-established criteria and methodology for applying those
prescriptions. OSM’s methodology and criteria for applying its prescriptions
were not established until after October 22, 2009, when OSM issued its first set of
determinations and based them on the process that had just taken place. OSM’s
methodology and criteria were explained in several different documents – the
institution-specific determination letters, a “fact sheet” summarizing some key
steps and decisions, and a three-page document issued several months later – but
the documents did not completely lay out OSM’s process, methodology, and
criteria. For example, OSM’s methodology document was incomplete in that
OSM did not establish meaningful criteria for granting exceptions to prescriptions
such as when an employee could be paid more than $500,000 in cash salary.
With the methodology incomplete and lacking meaningful criteria, the seven
companies faced surprises and unpredictability in OSM’s process. Some
companies told SIGTARP that OSM’s criteria were constantly evolving, and it
was not clear how the criteria would be applied. Some companies told SIGTARP
that they were not aware that there would be a $500,000 salary cap or that they
could request exceptions to it. Some companies told SIGTARP that they were not
aware of certain criteria until hours or days before OSM issued its first
determination letters. The methodology does not address how OSM determined
the peer group for the 50th percentile of total compensation for similarly situated
employees, nor does it explain how OSM arrived at the 50th percentile as a
reasonable limit to set. In addition, the document lacks meaningful criteria for
establishing the amount of stock salary.

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Analysis of the Special Master’s Executive
Compensation Determinations
This section analyzes the decisions made by the Special Master in setting pay
packages for the Top 25 employees from 2009-2011. It also discusses OSM’s
application of the $500,000 cash salary cap and its uses of stock salary and
market data for targeting pay at the 50th percentile.
There were variations among pay packages set by the Special Master that were
largely a product of conflicting goals and differences in the companies under
OSM’s jurisdiction. OSM faced difficulty in setting pay packages that would rein
in excessive executive compensation while still attracting and retaining key
employees in order to meet his number one goal of ensuring that the companies
repaid taxpayers’ TARP investment. Special Master Feinberg explained to
SIGTARP that EESA, as amended by the Recovery Act, is inconsistent because it
intends for institutions to remain competitive and promote employee retention,
but it does not allow certain compensation structures similar to other companies
because they are deemed excessive and not performance based over the long term.
In addition to the conflicting goals under which he operated, Special Master
Feinberg told SIGTARP that he applied criteria with a “healthy dose of
discretion” for company-specific circumstances that caused results to vary among
companies. The total compensation each company’s group of Top 25 employees
received, as illustrated in Figure 1 on the following page, differed significantly.
These differences may be due to the number of Top 25 employees in each
company,21 variation in the companies’ sizes and industries, and because some
companies had unique circumstances. For example, Chrysler Financial was
liquidating and had no stock to offer employees, and GM had stock but was
emerging from bankruptcy while preparing for an initial public offering.

21

AIG and Bank of America had only 13 employees remaining from their Top 25 groups in 2009 when the
October 22, 2009 determinations were issued. Other companies that year had between 20 and 25 employees
in their Top 25 groups at that time. In 2010 and 2011, Top 25 groups varied, but to a lesser extent.

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FIGURE 1

2009-2011 TOTAL DIRECT COMPENSATION APPROVED BY OSM FOR TOP 25
EMPLOYEES AT EXCEPTIONAL ASSISTANCE TARP COMPANIES
($, in millions)

$0

$20

$40

$60

$80

$100

$120

$140

2009
Citigroup

21

Ally Financial

23

Bank of America

13

AIG

13

General Motors

20

Chrysler Group

25

Chrysler Financial

22

Cash Salary
Stock Salary

2010
Ally Financial

24

AIG

Long-Term Restricted
Stock

23

General Motors

25

Chrysler Group
Chrysler Financial

The # of Top 25
employees in each firm is
listed next to the horizontal
bar.

24
25

2011
Ally Financial

25

AIG

23

General Motors
Chrysler Group

25
25

Note: This chart depicts all the pay packages approved by the Special Master over the 2009 to 2011 period. Total direct
compensation includes cash salary, stock salary, and long-term restricted stock as determined by OSM.
Source: SIGTARP analysis of the Special Master’s determinations.

OSM approved sizable pay packages. According to OSM, it approved pay
packages worth $5 million or more over the 2009 to 2011 period for 49
individuals. Year after year, OSM approved for AIG CEO Robert Benmosche the
largest compensation package of all approved by OSM – $10.5 million in total
pay, including the largest cash salary – $3 million. OSM approved other sizable
pay packages. In 2009, OSM approved a Bank of America employee to receive
$9.8 million in total pay, consisting of $500,000 in cash salary and the remaining
$9.3 million in stock salary. That same year, OSM approved a pay package for
Ally CEO Michael Carpenter of $9.5 million, with $950,000 in cash salary,
$5.4 million in stock salary, and $3.1 million in long-term restricted stock. In
2010, OSM approved GM’s CEO Ed Whitacre to earn the most compensation
after Benmosche. The compensation package approved for the CEO of GM in
2010 was $9 million in total pay, consisting of $1.7 million in cash salary,
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$5.3 million in stock salary, and $2 million in long-term restricted stock. The
same pay package was approved for Dan Akerson, who succeeded Whitacre as
CEO of GM. In 2011, OSM approved for Ally’s CEO Carpenter and GM’s CEO
Akerson the second- and third-largest compensation packages. Carpenter
received $9.5 million in total pay, consisting of $8 million in stock salary and
$1.5 million in long-term restricted stock, and Akerson’s pay package remained
unchanged at $9 million as set in the prior year.
OSM also approved, for employees who were paid $5 million or more in total
pay, significant compensation in stock. In 2009, OSM approved total stock
compensation for those employees, including both stock salary and long-term
restricted stock, in amounts ranging from $4.2 million to $9.3 million. In 2010,
OSM approved these employees to receive between $4.3 million and $8 million,22
and in 2011, OSM approved them to receive between $4.3 million and
$9.5 million in total stock pay. Figure 2 on the following page shows OSMapproved pay packages by size.

22

The $8 million compensation package was for Ally CEO Carpenter. Carpenter also received $1.5 million in
incentive restricted stock units as part of an aggregate $12.5 million approved by OSM to be allocated by
Ally’s compensation committee to Top 25 employees.

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FIGURE 2

OSM-APPROVED PAY PACKAGES ANNUALLY BY SIZE

OSM-Approved Pay Packages for Top 25 Employees
0

10

20

30

40

50

60

70

2009 Pay Packages = 137
$0 - <$1m
$1m - <$3m
$3m - <$5m
$5m - <$10m
$10m or more

69
21
16
30
1

2010 Pay Packages = 121
$0 - <$1m
$1m - <$3m
$3m - <$5m
$5m - <$10m
$10m or more

50
43
13
14
1

2011 Pay Packages = 98
$0 - <$1m
$1m - <$3m
$3m - <$5m
$5m - <$10m
$10m or more

27
32
20
18
1

Note: The number of Top 25 employees who received a pay package in that range is listed in the horizontal bar. This
chart depicts all the pay packages approved by the Special Master over the 2009 to 2011 period.
Source: SIGTARP analysis of the Special Master’s determinations.

The Special Master Allowed Some Employees To Be Paid
Cash Salaries of more than $500,000
The Special Master allowed employees to be paid more than $500,000 in cash
salary. The Special Master’s prescriptions require a showing of “good cause” for
an employee to be paid more than $500,000 in cash. In 2009, the Special Master
approved 10 employees at TARP exceptional assistance companies to be paid
cash salaries of more than $500,000. In 2010 and 2011, OSM allowed 22
employees to be paid cash salaries of more than $500,000. Figure 3 shows the
number of employees approved by the Special Master to be paid more than
$500,000 in each year.

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FIGURE 3

EMPLOYEES AT EXCEPTIONAL ASSISTANCE TARP RECIPIENTS APPROVED BY THE
SPECIAL MASTER TO BE PAID CASH SALARIES IN EXCESS OF $500,000

OSM-Approved Salaries in Excess of $500,000

2009
Employees with cash salary more than $500,000 = 10

2010
Employees with cash salary more than $500K = 22

2011
Employees with cash salary more than $500K = 22
OSM-Approved Salaries in Excess of $500,000

N/A means that the company exited the exceptional assistance
program.

11
9
8
6
5

5
4
3
2

1
N/A
2009

2010

AIG

2011   

2009 

N/A

2010       2011   

Bank of America

N/A
2009 

Citigroup

N/A

N/A

2010       2011   

2009 

2010

2011   

Chrysler Group

2009 

2010       2011

General Motors

2009 

2010

2011   

Chrysler Financial

2009 

2010       2011   

Ally

Note: This chart depicts all of the approved cash salaries of more than $500,000 over the 2009-2011 period. The number of employees
approved to receive cash salaries in excess of $500,000 is listed in the vertical bars.
Sources: SIGTARP analysis of companies’ proposed cash-based salaries and the Special Master’s determinations.

In 2009, the Special Master approved cash salaries of more than $500,000 for
AIG’s CEO, two GM employees, three Ally employees, and four Chrysler
Financial employees. Bank of America, Citigroup, and Chrysler requested but did
not receive relief from the $500,000 cash salary cap. In 2010, the Special Master
approved cash salaries of more than $500,000 for five AIG employees, eight
Chrysler Financial employees, and nine GM employees. Chrysler did not request
any salaries over $500,000 and the Special Master that year denied Ally’s request
for relief for five employees. In 2011, the Special Master approved cash salaries
of more than $500,000 for five AIG employees, six Ally employees, and 11 GM
employees. Chrysler did not request any salaries over $500,000.

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The Special Master Consistently Approved Cash Salaries in Excess
of $500,000 for the CEO of Each Company Who Asked, with the
Exception of Bank of America’s CEO, Who Had Announced His
Retirement
The Special Master approved cash salaries in excess of $500,000 for CEOs of
institutions that had received exceptional assistance under TARP. Every
institution that requested relief from the $500,000 cash salary cap for its CEO
received OSM approval, except for Bank of America’s CEO, who had announced
his retirement. The Special Master did not approve any compensation for Bank of
America’s CEO because the CEO would receive a substantial retirement package.
Citigroup CEO Vikram Pandit voluntarily agreed in a Congressional hearing to
take a $1 salary with no bonus until Citigroup returned to profitability. Fiat paid
Chrysler CEO Sergio Marchionne approximately €4.8 million in total
compensation because he was also the CEO of Fiat S.p.A. The CEO’s pay from
Fiat was outside of OSM’s jurisdiction, but OSM approved $600,000 in stock
salary for the CEO’s role as a Director. SIGTARP found that for seven CEOs, the
Special Master approved cash salaries of more than $500,000, with some of them
receiving these salaries for multiple years, as illustrated in Table 2 on the
following page.

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TABLE 2

PAY PACKAGES APPROVED BY THE SPECIAL MASTER OF CEOS OF TARP RECIPIENTS RECEIVING
EXCEPTIONAL ASSISTANCE
2009
AIG

2010

2011

Benmosche

Benmosche

Benmosche

Cash Salary

$3,000,000

$3,000,000

$3,000,000

Stock Salary

4,000,000

4,000,000

7,500,000

Long-Term Restricted Stock

3,500,000

3,500,000

0

Total Direct Compensation

$10,500,000

GM

$10,500,000
b

Henderson

Whitacre

$10,500,000
b

Akerson

Akerson

Cash Salary

$950,000

$1,700,000

$1,700,000

$1,700,000

Stock Salary

2,421,667

5,300,000

5,300,000

5,300,000

Long-Term Restricted Stock

1,815,000

2,000,000

2,000,000

2,000,000

Total Direct Compensation

$5,186,667

$9,000,000

$9,000,000

$9,000,000

Ally

c

de Molina

Carpenter

Carpenter

Carpenter

c

Cash Salary

$850,000

$950,000

$0

$0

Stock Salary

4,491,667

5,415,000

8,000,000

8,000,000

Long-Term Restricted Stock

2,816,667

3,135,000

0

1,500,000

Total Direct Compensation
Chrysler

$8,158,334 $9,500,000
Marchionne

a

$8,000,000

$9,500,000

a

Marchionne

Marchionne

Cash Salary

$0

$0

$0

Stock Salary

$600,000

0

0

Long-Term Restricted Stock

0

0

0

Total Direct Compensation

$600,000

$0

$0

Gilman

Gilman

Cash Salary

$1,500,000

$1,650,000

Stock Salary

0

0

Long-Term Restricted Stock

0

0

Total Direct Compensation

$1,500,000

$1,650,000

Chrysler Financial

Bank of America

Lewis

Cash Salary

d

d

d

d

$0

Stock Salary

d

0

Long-Term Restricted Stock

0

Total Direct Compensation

$0

Citigroup

Pandit

Cash Salary

$1

Stock Salary

0

Long-Term Restricted Stock

0

Total Direct Compensation

$1

a Chrysler CEO Sergio Marchionne received approximately €4.8 million in 2009 and approximately €3.5 million in 2010 from Fiat S.p.A.
b In 2010, there was only one pay package totaling $9 million for both GM CEOs Whitacre and Akerson.
c According to OSM, Ally CEO Carpenter did not receive $9.5 million in 2009 because his 2009 compensation was prorated. In 2010, Ally’s compensation
committee received OSM approval to allocate $12.5 million in long-term restricted stock to Top 25 employees. Carpenter received $1.5 million of that total.
d Bank of America and Citigroup were not subject to OSM after 2009. Chrysler Financial was not subject to OSM after 2010.
Sources: SIGTARP analysis of OSM documentation and the Special Master’s determinations.

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In 2009, 2010, and 2011, the Special Master approved a $3 million cash salary for
AIG CEO Benmosche. According to OSM, Benmosche was a particularly crucial
hire at a time when AIG faced a multitude of challenges and he was brought in to
lead the company that had received the greatest amount of Government
assistance.23 OSM also told SIGTARP that Benmosche’s compensation package
was reasonable relative to the market. On October 2, 2009, in a supplemental
determination, OSM set Benmosche’s total compensation package at
$10.5 million, consisting of $3 million in cash salary, $4 million in stock salary
that could not be sold for at least five years, and an annual incentive award of
$3.5 million in long-term restricted stock units. His actual incentive award was
prorated to reflect the portion of the year he was employed by AIG, and thus he
received approximately $1.4 million of the $3.5 million.24
In 2009, the Special Master approved a cash salary of $950,000 for GM’s interim
CEO, Fritz Henderson, as well as $2.4 million in stock salary and $1.8 million in
long-term restricted stock. OSM told SIGTARP that this was necessary to align
Henderson’s salary with other auto industry CEOs. In 2010 and 2011, the Special
Master approved for GM’s outgoing CEO Whitacre25 and incoming CEO
Akerson26 total pay packages of $9 million, consisting of cash salaries of
$1.7 million cash salaries, stock salaries of $5.3 million, and long-term restricted
stock of $2 million. The Special Master justified Whitacre’s salary on the basis
that he was an outside hire who came out of retirement, while OSM determined
that Akerson would receive the same annualized compensation as the outgoing
CEO.
In 2009, the Special Master approved a cash salary of $1.5 million for Chrysler
Financial Chairman and CEO Thomas F. Gilman. OSM said that he, along with
other Chrysler Financial executives, filled an essential role during the company’s
wind-down. In 2010, OSM approved a $150,000 increase in Gilman’s cash salary
to $1.65 million because stock was not appropriate for employees of a company
that would be liquidated.
In 2009, the Special Master approved a cash salary of $850,000 for Ally’s
outgoing CEO, Al de Molina, who had announced his resignation, as well as
$4.5 million in stock salary and $2.8 million in long-term restricted stock.27 For
Ally’s then-new CEO, Carpenter, OSM approved a $950,000 cash salary,
$5.4 million in stock salary, and $3.1 million in long-term restricted stock. OSM
told SIGTARP that it approved these salaries because de Molina needed to be
23

As of December 31, 2011, Treasury’s equity ownership in AIG was 77%.
In May 2010, AIG disclosed in a Securities and Exchange Commission filing that Benmosche had substantially
achieved or exceeded his target performance level needed to earn his incentive award.
25
Ed Whitacre was GM’s CEO from December 2009 through August 2010.
26
Dan Akerson became GM’s CEO, effective September 1, 2010.
27
Al de Molina announced his resignation in November 2009.
24

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retained and Carpenter was a newly hired senior executive officer. In subsequent
years, Carpenter’s cash salary was reduced to $0 because Ally’s compensation
committee requested that all of the CEO’s compensation be based on the longterm equity value of the company. Accordingly, based on one of the firm’s
financial disclosures, for 2010, the CEO’s 2009 cash salary of $950,000 was
discontinued and the CEO’s stock salary was increased by an equal amount.

The Special Master Was Inconsistent in Approving Cash
Salaries in Excess of $500,000
SIGTARP found that the Special Master was inconsistent in applying OSM’s
prescription to limit cash salaries to $500,000 except for “good cause” shown.
OSM lacked documentation supporting why it provided employees cash salaries
of more than $500,000. The Special Master told SIGTARP that it was always his
decision to approve cash salaries of more than $500,000 based on names,
circumstances, and empirical data. He told SIGTARP that he never told
companies to choose which employees would receive cash salaries of more than
$500,000.
The Special Master said, in looking for evidence, companies might say, “we need
this guy” and argue reasons why. He also said there was open communication
with the companies about the importance of those employees. However, instead
of looking at each person to determine “good cause,” the Special Master allowed
Ally and GM to choose which employees would receive more than $500,000.
Ally executives told SIGTARP that OSM gave them a “ballpark number” of two
to four employees who could be paid more than $500,000 in cash salary and that
the CEO selected the employees. For GM, in a February 27, 2010, email, the
Special Master corresponded with OSM staff after a call from GM executives to
consider eight employees for cash increases for salaries greater than $500,000.
The Special Master questioned the OSM staff: “Can we (should we?) permit GM
to go above $500,000 with a few? … Which ones? Or should I just get to her and
tell her we can’t do it?” OSM staff responded to the Special Master: “With
respect to GM, we told them a maximum of five above $500K and four at $500K.
We left it to them to decide which individuals would be taken down to comply
with these restrictions.” SIGTARP found that OSM approved nine GM pay
packages in 2010 that contained cash salaries of more than $500,000.28 In 2011,
OSM approved cash salaries of more than $500,000 for 11, or 44% of GM’s
Top 25 employees.

28

CEOs Whitacre and Akerson each received pay packages totaling $9 million with cash salaries of
$1.7 million.

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Ally CEO Carpenter told SIGTARP that the $500,000 annual cash salary limit
was constraining: “We had an individual who was making $1.5 million total
compensation with $1 million in cash. Cutting this person’s salary to
$500,000…this individual is in their early 40s, with two kids in private school,
who is now considered cash poor. The reduction in monthly cash expenses would
take at least two years to monetize value via stock salary…We were concerned
that these people would not meet their monthly expenses due to the reduction in
cash.”
In making these decisions, Feinberg was aware of political risk, telling SIGTARP
that there was a combination of data refinement plus anecdotal evidence minus
political risk. Ally officials told SIGTARP that public perception was possibly a
reason the Special Master granted only two to three exceptions. Ally officials
also said that the Special Master was concerned that a majority of the Top 25
employees were part of the problem that resulted in the bailout.
According to OSM, the Special Master relied on the companies to provide
justifications for all individual compensation proposals, including proposals for
cash salaries above $500,000. However, SIGTARP found that OSM’s
justifications for cash salaries it approved in excess of $500,000 lacked detail.
For example, for 2011, several of OSM’s justifications were “No Change” 29 and
“Critical to Turnaround.”30

With Limited Justifications, OSM Approved Cash Salaries of more
than $500,000 for Employees of AIG, GM, Chrysler Financial, and
Ally
In 2010, OSM approved a $1.5 million cash salary for one AIG employee
because, according to OSM, it was important to retain this employee. That same
year, OSM approved $700,000 in cash salary for three AIG employees who were
considered to be crucial. In 2011, OSM kept the same $700,000 cash salary for
two of those AIG employees. OSM also approved a cash salary of $1.8 million
for one AIG employee and a cash salary of $975,000 for another AIG employee,
both of whom were deemed crucial to the company’s turnaround.
In 2009, OSM approved a cash salary of $750,000 for one GM employee because
OSM considered the employee crucial to retain. The next year, OSM approved
cash salaries between $600,000 and $900,000 for four GM employees whom
29

“No Change” was the rationale for three AIG employees who each received $700,000 or more in cash salary
and four GM employees who each received $580,000 or more in cash salary.
30
“Critical to Turnaround” was the rationale for one AIG employee who received $1.8 million in cash salary
and six Ally employees who each received $550,000 or more in cash salary.
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OSM considered crucial to GM’s turnaround and who were given additional
responsibilities regarding the company’s restructuring. In 2011, OSM approved
cash salaries ranging from $578,024 to $900,000 for 10 GM employees. Some of
the employees were considered crucial, took on additional responsibilities, and
received significant promotions.
In 2009, OSM approved cash salaries of approximately $1.4 million, $800,000,
and $600,000 for three employees of Chrysler Financial, which was liquidating.
According to OSM, it approved these salaries for these employees because the
company viewed them as filling essential roles during the company’s wind-down.
In 2010, the company proposed 20% cash salary increases over 2009 approved
levels for all Top 25 employees, which would have resulted in 14 employees
whose cash salaries would have exceeded $500,000. According to OSM, cash
salaries were appropriate for Chrysler Financial employees because the company
would liquidate and needed to give employees incentives to remain at the firm.
OSM approved a 10% increase in cash compensation as opposed to the 20% raise
requested. Company executives told SIGTARP they believed OSM’s decision to
allow 10% raises as opposed to the 20% requested was due to public perception.
They also said they did not request a reconsideration because of potential negative
publicity and for not wanting to “rock the boat.” Seven employees received
between $539,000 and approximately $1.5 million each.
In 2009, OSM allowed one Ally employee to be paid cash salary of $600,000 on
the basis that the employee was considered crucial. In 2010, no Ally employees
were paid more than $500,000 in cash. In 2011, OSM approved cash salaries
ranging from $550,000 to $600,000 for six Ally employees deemed crucial to the
company’s turnaround. One of those employees was a new hire, while four of
them had been with the company for fewer than two years.

The Special Master’s Criteria of Using the 50th Percentile Pay Level
for Similarly Situated Employees and the Selection of Peer Groups
Were Not Based on Substantive Due Diligence
OSM used the 50th percentile to set pay packages under an IFR policy that says
compensation structures should reflect the need for TARP recipients to remain
competitive, to retain and recruit talented employees who will contribute to the
TARP recipient’s future success, and ultimately to repay TARP obligations. The
Special Master told SIGTARP that the 50th percentile level of compensation was
an “obvious” starting point and an “appropriate” level of compensation to balance
the need to retain and attract employees. Other OSM officials called the 50th
percentile “reasonable.” According to OSM, the 50th percentile allowed the
companies to be paid similar to other financially distressed companies and that a

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target below the 50th percentile would have risked that the companies would be at
a competitive disadvantage in the marketplace.
Although OSM consulted with academics and an executive compensation expert,
that consultation yielded differing opinions. OSM did not broaden its due
diligence to look at how similarly situated companies paid their employees.
SIGTARP found no documentation that OSM researched empirical evidence of
pay levels at companies that may have been similarly situated, such as companies
in Chapter 11 reorganization, conservatorship, liquidation, or those in turnaround.
When asked in testimony whether he considered that the firms would have gone
bankrupt without Government bailouts and if he took into account that CEOs of
bankrupt firms don’t get paid a lot, the Special Master said that OSM looked at all
of the variables to try and come up with a pay package that was appropriate in
light of competitive pressures.
OSM’s methodology was not created until after OSM issued its first set of
determinations. The methodology says the 50th percentile balanced the fact that
recipients were financially distressed companies and the fact that the recipients
needed to remain competitive in the marketplace, but it does not address how
OSM arrived at the 50th percentile target for compensation. OSM officials told
SIGTARP that some of the companies thought they should be higher than the
50th percentile, but OSM officials did not feel this was “appropriate.” OSM
officials told SIGTARP that the seven companies did not have a great argument
that they were better than the 50th percentile because, “If they were better than
the 50th percentile, they wouldn’t be having discussions with OSM in the first
place.” Given OSM’s explanations of “obvious,” “reasonable,” and
“appropriate,” and OSM’s lack of any documentation of the selection of these
criteria, it appears that OSM’s selection of the 50th percentile was based on OSM
staff’s experience with setting executive compensation rather than on empirical
evidence.
There is a debate surrounding OSM’s use of the 50th percentile. COP issued a
February 2011 report that states that while the 50th percentile is an intuitively
appealing middle ground, the Special Master presented no evidence that it is the
appropriate level of pay for a firm to remain competitive. COP was critical of
OSM for saying that it looked at distressed companies, but did not consider
market data on pay for turnaround specialists. COP also says that it is unclear
how many distressed companies were considered and the impact they had on
OSM’s calculations.
University of Southern California (“USC”) Professor Kevin J. Murphy,31 who
served as a consultant for OSM, shared his concerns with OSM about using the
31

Kevin J. Murphy is the Kenneth L. Trefftzs Chair in Finance in the Department of Finance and Business
Economics at the USC Marshall School, professor of business and law in the USC Law School, and professor
of economics in the USC Economics Department.

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50th percentile as a basis for approving compensation. He said that targeting the
50th percentile does not provide information on how the peer groups were chosen,
what companies are in the peer groups, or how the various components of pay
were defined, calculated, and added together to form total compensation.
Murphy, who testified before COP that the pay restrictions for TARP recipients
were value destroying, even suggested that the 50th percentile target may be too
low to attract executives to financially troubled companies.

SIGTARP Was Unable To Analyze Whether the Special
Master Consistently Applied the 50th Percentile Criteria
Because OSM Did Not Maintain Adequate Documentation
SIGTARP was unable to analyze OSM’s application of the 50th percentile pay
level for similarly situated employees because OSM did not maintain complete
records of the market-based data that factored into its determinations. Since OSM
did not maintain those records showing how it determined the 50th percentile for
each position in each company, SIGTARP could not determine whether OSM’s
50th-percentile analysis was based on similarly situated employees for
comparison, how closely pay determinations aligned with those comparisons, and
whether OSM consistently applied those comparisons.
An AIG official told SIGTARP that AIG was not aware of the market data used
by OSM. He said he was surprised when OSM rejected the market data submitted
by AIG in which AIG compared itself to other large companies at the
75th percentile for salary targets. Although AIG did not know what market data
OSM used, the AIG official told SIGTARP that it apparently measured AIG
against a different universe of firms and AIG disagreed with that universe of
firms.

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AIG Pushed for Excessive Raises in Cash
Salaries for Its Top 25 Employees and
Pushed Against Pay in AIG Stock
This section discusses how the Special Master arrived at determinations for AIG
as well as the unique circumstances and issues surrounding OSM’s process to set
pay at AIG.
OSM told SIGTARP that it faced a different experience working with AIG than
with the other six companies. The Special Master stated that AIG constituted
80% of his headaches throughout the 2009 pay determination process. AIG did
not have a good handle on its data, could not identify its Top 25 employees, and
was the only company that did not agree to renegotiate cash compensation
grandfathered through prior employment contracts. OSM said AIG’s vast size
and the lack of connection between subsidiaries made it difficult for AIG to
determine its Top 25 employees.
In 2009, AIG requested excessive increases in cash salaries and was against pay
in the form of stock due to concerns over the value of AIG common stock. As a
basis for setting pay, AIG wanted to compare itself to Goldman Sachs, JPMorgan
Chase & Co., and Morgan Stanley, presumably because those companies paid
employees more than AIG did, and AIG also wanted to compare its business unit
heads to CEOs of other companies. OSM ruled that these were not reasonable
comparisons for AIG. Other senior Treasury officials were significantly involved
in AIG’s pay determination process, but not for other companies. In 2010, AIG
again requested cash salary increases and pushed against pay in AIG common
stock. In 2011, AIG proposed that five employees be approved to receive more
than $500,000 in cash salary and requested stock salary in the form of AIG
common stock or common stock units.

Before the Creation of OSM, AIG Faced Congressional and
Public Anger After Paying Millions of Dollars in Retention
Awards to AIGFP Employees Post-Bailout
AIG’s compensation was an issue before OSM was established. As detailed in
SIGTARP’s October 14, 2009, audit report, “Extent of Federal Agencies’
Oversight of AIG Compensation Varied, and Important Challenges Remain,”
after AIG was bailed out by the Government, it paid millions of dollars in
retention payments to around 400 employees of its Financial Products unit

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(“AIGFP”), whose losses contributed to the need for Government intervention.32
Approximately half of the total retention awards were distributed to around 400
employees in two installments: nearly $56 million in retention awards in
December 2008 and approximately $168 million in March 2009. Approximately
62% of AIGFP employees received retention awards of $100,000 or more. The
retention payments were made under pre-Recovery Act contracts and were
outside the jurisdiction of OSM.
In March 2009, Congress and the public expressed anger over the $168 million in
AIG award payments, particularly because AIGFP was the group whose financial
losses largely led to AIG’s need for large-scale Government intervention.
Congress held hearings and introduced legislation to tax the awards. There was
significant media coverage, including news that protestors visited homes of AIG
employees and some employees received threats. The situation became so heated
that AIG asked AIGFP employees who received retention awards of more than
$100,000 to return 50% of the award received. Ultimately, AIGFP employees
paid back or waived more than $45 million that employees pledged to return to
the firm.33
These early retention awards are important to understand the work of the Special
Master as they related to AIG because under the contracts, $198 million in awards
was scheduled for payment in March 2010. Feinberg told SIGTARP that AIG
posed a huge political problem when it paid out the bonuses to AIGFP employees.
He added that “politically, AIG was a nightmare” because it had a huge problem
with grandfathered contracts, bonuses, and severance. For OSM’s 2009
determinations, five of AIG’s Top 25 employees worked for AIGFP and were
eligible for retention awards. In addition, AIG also had to make cash awards to
other AIG Top 25 employees under pre-Recovery Act contracts. The Special
Master took the retention awards into consideration when setting pay for the
Top 25 because AIG would not renegotiate the contracts and planned to pay the
awards as scheduled. SIGTARP recommended that OSM consult with the
Federal Reserve Bank of New York (“FRBNY”) for input because it was heavily
involved in AIG executive compensation issues.

32

This audit report addresses the extent of the knowledge and oversight by Federal Reserve and Treasury
officials over AIG compensation programs, and, specifically, retention payments to AIGFP. The report also
addresses the extent to which AIGFP retention payments were governed by the executive compensation
restrictions or by preexisting contractual obligations, the outstanding AIG compensation issues requiring
resolution, and Federal Government actions to address them. AIGFP’s primary business was trading in
derivatives of stocks and other securities. Of the $25 billion in losses that AIG announced in the third quarter
of 2008, $19 billion came from AIGFP’s losses on one type of derivative called credit default swaps. These
conditions led to the unprecedented Government bailout of AIG.
33
Eight employees in AIG’s Top 25 pledged to repay $22.1 million in AIGFP retention awards. In the end,
those eight employees reimbursed AIG $15.8 million.
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OSM told SIGTARP that it faced a different experience working with AIG than
with the other six companies. The Special Master stated that AIG constituted
80% of his headaches throughout the 2009 pay determination process. AIG did
not have a good handle on its data due to its vast size and many subsidiaries,
could not identify its Top 25 employees, and was the only company that did not
agree to renegotiate cash compensation grandfathered through prior employment
contracts.

AIG Employees Declined Request To Restructure Upcoming
Retention Awards Under Pre-Recovery Act Employment
Contracts
Although OSM could not require TARP companies to stop payment of future
awards under contracts that existed prior to the Recovery Act, OSM pushed AIG,
Bank of America, and Citigroup to restructure voluntarily future cash awards into
stock.34 However, AIG did not agree. Bank of America and Citigroup, on the
other hand, restructured future awards so that when the awards with salary
exceeded $500,000, the balance was payable in stock salary and long-term
restricted stock. Feinberg told SIGTARP that the companies “understood the
potential for Congressional uproar had they not.” In 2009, 11 AIG employees
were scheduled to receive retention awards and other payments. In 2010, 18 AIG
employees were scheduled to receive retention awards and other payments. The
largest of these payments in both years was approximately $4.7 million.
Jim Millstein, Treasury’s then-head of restructuring for AIG, was heavily
involved in the discussions regarding AIG’s retention awards. Millstein told
SIGTARP that it was not a particularly smooth operation with the Special Master
and AIG initially because AIG’s human resources function was in disarray with
each subsidiary controlling its own data on executive compensation. Millstein
told SIGTARP that he looked at each grandfathered contract and worked on what
was in the jurisdiction of OSM to change. In the end, AIG did not take away any
of the upcoming awards.
34

The Recovery Act mandated that OSM conduct a “look-back” at post-TARP bonuses, retention awards,
golden parachutes, and other awards paid to the Top 25 employees at all TARP recipients pursuant to
contracts entered into before the Recovery Act and, where contrary to EESA, TARP, or the public interest,
“seek to negotiate” reimbursement to the Government. OSM focused this review on the Top 25 executives
who earned more than $500,000 per year because Feinberg felt that anything less than $500,000 a year was
highly unlikely to be contrary to the public interest. OSM found that 17 TARP recipients, including Bank of
America, Citigroup, and AIG, made payments of $1.7 billion that were considered “disfavored.” Special
Master Feinberg testified before COP that the awards were “inappropriate because they were taking taxpayer
money and feathering their own nest.” Despite finding the awards inappropriate and disfavored, OSM found
that no post-TARP payments were contrary to the public interest because then-existing rules allowed the
payments, and the payments were largely from companies that had repaid TARP. Therefore, OSM concluded
that it had no authority to “seek to negotiate” reimbursement to the Government.

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AIG CEO Robert Benmosche explained to SIGTARP the reasoning for AIG’s
decision not to restructure the awards in 2009: “I got a message that Ken
[Feinberg] had a desire to take away retention payments. I had to make sure my
people got paid. … I had 10 senior executives that lost $168 million in pay. We
had people that were completely wiped out when the stock fell. … The stock
didn’t have any value to the employees, as these people were getting stock that
they couldn’t sell because it was not vested. Ken Feinberg wanted to be able to
tell Congress that no retention payments would be paid. But the retention
payments were the only way to pay and keep people. They were not retention
payments per se, but they were bonuses that they would have normally got. ...
[AIG]FP was the primary cause, but everybody lost. I told him you can’t cut
salaries so much and put pensions in long-term stock – people need something to
live on ... We succeeded in keeping all retention payments. The penalty was very
low salaries.”

In 2009, AIG Proposed Excessive Cash Raises for Its Top 25
Employees and Proposed Treating Heads of AIG Subsidiaries
as CEOs
The fact that AIG’s CEO felt that OSM penalized AIG with very low salaries is
not surprising, given that in August 2009, AIG proposed excessive cash raises for
its Top 25 employees that generally exceeded the 50th percentile of amounts paid
to employees in similar roles at similar companies. OSM told SIGTARP that AIG
wanted to compare itself to Goldman Sachs, JPMorgan, and Morgan Stanley. In
its August 2009 submission to OSM, AIG also proposed that employees be able to
cash out immediately 50% of any stock salary received, and that compensation for
AIG subsidiary heads be calculated in the 50th to 75th percentile of CEOs of
other companies.
A senior AIG official told SIGTARP that AIG had a practice of paying its
employees high salaries with very limited incentive compensation. AIG did not
stray from that practice in its 2009 proposal for the Top 25 employees. According
to an internal OSM document, AIG proposed to the Special Master cash salary
increases from 20% to 129% over 2008 cash salaries for one group of AIG
employees. The document stated that these proposed salaries were larger than
previously discussed with OSM and were unjustified by the comparative data.
The document also stated that for another group of employees, AIG proposed
cash salary increases ranging from 84% to 550% that were also too high and
unjustified. In addition to the cash raises proposed by AIG for Top 25 employees,
the document also stated that AIG proposed that 50% of its stock salary be
sellable immediately, which would have increased guaranteed cash amounts for
certain employees by 55%, to 317%.

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AIG also proposed compensation for the heads of AIG subsidiaries comparable to
the 50th to 75th percentiles of CEOs of other companies. OSM rejected AIG’s
proposal to treat these employees as CEOs, explaining to SIGTARP, “When you
are the CEO of a [subsidiary], your responsibilities are substantially different than
if you are the CEO of a public company.” OSM said that it took a hard-line
stance that each of the seven companies had only one CEO who should be paid
like a CEO.

The Special Master Set Salaries for AIG Top 25 Employees in
2009
For 2009, OSM approved only five of the 13 employees in AIG’s Top 25 to
receive total compensation of cash and stock of more than $1 million. OSM
approved new AIG CEO Benmosche’s pay package of $10.5 million ($3 million
in cash salary, $4 million in AIG common stock, and $3.5 million in restricted
stock tied to achieving performance measures). OSM approved total
compensation packages for four AIG employees at approximately $4.3 million,
$4.7 million, $5.7 million, and $7.1 million (including cash salaries ranging from
$350,000 to $450,000). These employees were scheduled to also receive cash
retention awards that year of up to $2.4 million.35
At the time OSM was determining pay for AIG, 11 of the 13 employees in AIG’s
Top 25 were scheduled to receive cash retention awards and other payments in
2009 of up to approximately $4.7 million. OSM told SIGTARP that it considered
these awards when setting the employees’ compensation. Special Master
Feinberg testified before the House Committee on Financial Services that for AIG
for 2009, he refused to adopt AIG’s proposed cash salaries, “which, in light of the
retention payments, would have resulted in an excessive level of cash
compensation.”
For five AIGFP employees who were scheduled to receive 2009 cash retention
awards up to approximately $4.7 million, OSM froze cash salaries at 2007 levels
($100,000 to $177,799) and gave them no stock. For non-AIGFP employees who
would receive retention awards up to $2.4 million, OSM set the employees’ cash
salaries below 2007 levels ($350,000 to $450,000). Table 3 is a side-by-side look
at the compensation approved by the Special Master as well as the retention
awards AIG employees were scheduled to receive under prior Recovery Act
contracts.

35

Kris Moor, President of AIG’s Chartis subsidiary, was scheduled to receive a $2.4 million retention award.
David Herzog, AIG’s CFO, was scheduled to receive a $1.5 million retention award.

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TABLE 3

22009 AIG TOP 25 TOTAL COMPENSATION APPROVED BY THE SPECIAL MASTER AND AUTHORIZED CASH
RETENTION AWARDS AND OTHER PAYMENTS SCHEDULED TO BE PAID UNDER PRE-RECOVERY ACT CONTRACTS
Cash
Salary

Stock Salary

Long-Term
Restricted
Stock

1

$3,000,000

$4,000,000

$3,500,000

2

350,000

100,000

225,000

3

125,000

–

–

4

177,799

–

–

5

425,000

–

–

6

125,000

–

–

7

350,000

3,104,167

8

144,000

–

–

9

100,000

–

–

10

450,000

4,691,667

2,000,000

11

425,000

–

–

12

450,000

3,258,333

1,000,000

13

375,000

3,566,666

1,750,000

$6,496,799

$18,720,833

$9,308,333

AIG
Employees

Total

Authorized Cash Retention
Awards and Other Payments

Total[1]

Information
Redacted
(See note)

833,333

(b)(4)

$22,180,000

$57,705,965

[1]: In addition to retention awards, there was one authorized payment for carried interest.
Note: In response to a draft of the AIG-specific portions of this report, AIG raised concerns about the inclusion of individual cash retention and other cash award data
on the grounds that it was confidential financial information that had not previously been publicly disclosed and that disclosure of individual awards could harm
AIG. SIGTARP is cognizant that the United States taxpayers currently own a significant percentage of AIG and thus out of an abundance of caution has worked
with AIG to make redactions of individual employee award data outside of OSM’s determinations.
Sources: SIGTARP analysis of data from AIG and OSM.

SIGTARP found that Millstein intervened in the Special Master’s process to set
the pay package for AIG CFO David Herzog.36 Millstein told SIGTARP that his
primary focus was to “keep AIG together.” Millstein told SIGTARP that he
[Millstein] was a facilitator/mediator between AIG and the Special Master. He
weighed in on OSM’s 2009 pay determination for AIG CFO Herzog, telling the
Special Master that if AIG did not retain its CFO, it risked a credit rating
downgrade. He advised the Special Master that AIG needed to keep Herzog by
possibly adding a little more cash, and a little more total compensation. In
response, Millstein said, the Special Master gave some concession to AIG’s
request for additional compensation, and the CFO remained at AIG.

36

FRBNY Executive Vice President Sarah Dahlgren told SIGTARP that she may have asked for an exception to
the $500,000 cash salary cap for AIG CFO David Herzog. She also told SIGTARP that she asked OSM to
treat the CEO of AIG subsidiary Chartis, who was a second- or third-tiered executive, at a higher peer group
than OSM had benchmarked. However, these requests did not influence the Special Master, who kept
Herzog under the cap and did not treat the Chartis CEO as a CEO. Dahlgren told SIGTARP that the Special
Master did not consider her assessment for a specific AIG executive.

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AIG Received Consideration for a Different Form of Stock
Salary for 2009
Feinberg told SIGTARP that AIG was anti-stock salary and wanted to pay
employees in cash. In its August 2009 compensation proposal, during the height
of contentious negotiations between AIG and the Special Master, AIG requested
that employees be able to cash out immediately 50% of any salary paid in AIG
common stock, and proposed receiving stock salary amounts ranging from
$250,000 to $4.6 million for employees. AIG proposed not to receive any
incentive awards in long-term restricted stock tied to achievement of performance
measures. OSM pushed back, making clear that immediately sellable stock was
not allowable, and insisting that part of the employees’ pay be vested over a
period of time.
AIG enlisted the help of Treasury officials Millstein and the Assistant Secretary
for Financial Stability, Herbert Allison. In an interview with SIGTARP, AIG
CEO Benmosche said that he told Millstein that the process was dysfunctional,
that AIG had a lot of concerns, and people would leave. He also told SIGTARP
that he asked Millstein to talk to Treasury and Feinberg to figure out the executive
compensation determination process.
Feinberg told SIGTARP that OFS stressed that the stock salary and grandfathered
contracts would jeopardize AIG. Feinberg told SIGTARP that he was pressured
by other senior Treasury officials and was told to be careful, that AIG owed a
fortune, and that Treasury did not want it to go belly up.37 He further stated that
Treasury officials felt those amounts were relatively small compared to the
Government’s exposure in AIG. Despite these pressures, Feinberg said that no
one trumped his decisions.

37

For details regarding the Government’s investment in AIG and the firm’s recapitalization plan, see
Appendix D.

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AIG and Treasury Officials Created a Phantom (Basket) Stock
for Six AIG Employees
Feinberg told SIGTARP that in his 2009 discussions with AIG related to stock
salary, AIG officials indicated that its common stock was essentially worthless.38
Feinberg said that to his surprise, this belief was shared by the Federal Reserve
and Treasury’s OFS. Whether the stock had value or not, it was volatile.
Between the release of the IFR on June 15, 2009, and OSM’s 2009 AIG
determination on October 22, 2009, AIG’s adjusted stock price ranged from $7.94
per share to $42.09. Feinberg testified before COP that he “tried to work
something out in conjunction with AIG’s suggestion that the stock, the common
stock, wasn’t worth enough to appropriately compensate top officials. But we
worked out a compromise with the Federal Reserve, with AIG, with the Office of
Financial Stability.”
SIGTARP found that then-Assistant Treasury Secretary Allison’s communication
with AIG officials over compensation was quite significant and starkly contrasted
with almost no involvement in compensation with the other six companies.
Allison had weekly telephone conversations with AIG CEO Benmosche and
AIG’s then Chairman of the Board during the height of OSM’s 2009
determination process. Allison told SIGTARP that there were times when he was
contacted by AIG top management who told him they were concerned that the
Special Master’s decisions would cause great reactions in keeping people.
Allison told SIGTARP that Feinberg was “tamping down” at AIG’s board.
Allison said that he voiced his concerns to the Special Master that AIG’s stock
had a lot of volatility and questioned whether it would be a reliable instrument of
value to retain and motivate employees. He said that stock salary needed to have
value and be linked to performance. He also said that he thought that AIG’s stock
was not very valuable and said, “…trading can go one way one day, the other
another…Could it be worth something? Yeah, it could. Could it be worthless?
Yeah, depends on what happens with the company.” Allison also told SIGTARP
that he “was there from the standpoint of protecting assets and taxpayers” and
“There was a ton of money invested and you don’t want to see it thrown away.”
Treasury’s Millstein had a heavy hand in OSM’s decision on AIG stock. He told
SIGTARP that he helped develop a new “phantom stock” that did not exist, was
independent of AIG’s balance sheet, and the value of which was based on the
book value of four AIG subsidiaries. Millstein helped create this phantom stock
(also called a basket stock), even though AIG’s common stock was trading on the
38

AIG’s prior General Counsel told SIGTARP that management viewed AIG’s stock as having less value than
other companies’ stocks and that AIG did not know if the firm would survive, and did not know what its
stock was worth. These facts bring to light why AIG’s initial proposal to OSM requested that half of the
executives’ stock salary be immediately sellable.

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market at an adjusted price of $20.42 per share on August 14, 2009, the same day
that AIG submitted its proposal to OSM to receive immediately sellable common
stock. He said that those subsidiaries had some measure of value and that it was
the best option. The four subsidiaries – American International Assurance Co.
Ltd. (“AIA”), American Life Insurance Co., Chartis, and AIG Domestic Life &
Retirement Services Group – were identified by OSM as those that AIG,
Treasury, and FRBNY identified as crucial to the future of the company.
However, a stock based on the values of AIG subsidiaries may not sufficiently
reflect losses sustained at AIGFP or reflect AIG’s massive Government
assistance.
The Special Master also consulted with FRBNY, which had been handling AIG’s
compensation issues prior to OSM. FRBNY Executive Vice President Sarah
Dahlgren told SIGTARP that she learned from participating in AIG compensation
committee meetings of employee concerns about the potential for future dilution
or price volatility if the Government were to sell off its ownership rapidly.
Dahlgren and another FRBNY official told SIGTARP that they were concerned
that if senior management left, it could trigger a potential downgrade, based on
statements to them by the rating agencies.
AIG CEO Benmosche opposed the phantom stock because it would send the
wrong message to AIG subsidiaries. That opposition is illustrated in a
September 28, 2009, email among OSM staff that referred to a discussion with an
AIG attorney: “Bob Benmosche has found that the subsidiaries are not working
well together – for example, some subsidiaries are hoarding cash to shore up their
own balance sheets, rather than conveying the cash to the parent, where it is badly
needed – and that Bob has concluded that subsidiary stock would exacerbate that
problem…Bob is adamantly opposed to the use of subsidiary stock, he [an AIG
attorney] said that a very high-level OFS business-level conversation would need
to be had to move Bob from that position.” On the day of this email, AIG’s stock
was trading at an adjusted price of $38.66 per share. Benmosche told SIGTARP
that a problem with the phantom stock was that it assumed AIG would divest all
companies, but he did not know how to define value in Chartis and AIA when
those entities were sold. Despite Benmosche’s concerns, OSM approved the new
phantom stock salary for AIG, citing “the principle that AIG must be able to
maintain and attract the necessary employees to remain competitive in the
marketplace.”39 However, for all of the work that went into creating this phantom
stock, OSM applied it to only six AIG employees, including the CEO.
OSM’s use of a phantom stock for AIG employees’ compensation stands in
contrast to OSM’s treatment of other companies that were also facing volatility in
their stock price.
39

According to OSM, the value of each subsidiary was to be determined on the basis of an adjusted book value
measure that excluded extraordinary events.

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Citigroup officials told SIGTARP that the most significant decision by the Special
Master was the use of stock salary. However, Citigroup had no intention of
staying under the Special Master’s purview beyond 2009. Citigroup officials
explained to SIGTARP that their approach for dealing with the Special Master’s
decision to use stock salary was to reassure employees that this would be a shortterm process and that they should hang on despite the drop in price. AIG,
Citigroup, and Bank of America’s adjusted stock prices are illustrated in Figure 4.
FIGURE 4

CLOSING DAY STOCK PRICES FOR PUBLICLY TRADED COMPANIES THAT RECEIVED
EXCEPTIONAL ASSISTANCE FROM 3/2009 THROUGH 11/2011
$60

$50

$40

BofA

$30

Citi
AIG

$20

$10

$0

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Source: SIGTARP analysis based on data from Yahoo Finance. Stock prices adjusted for stock splits.

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The Special Master Changed the Form of Stock
Compensation for Six AIG Employees from Phantom Stock
to AIG Common Stock
Shortly after OSM issued its determinations paying AIG’s Top 25 in the phantom
stock, AIG CEO Benmosche enlisted the help of senior Treasury officials
Millstein and Allison to deal with the Special Master. Beyond his weekly
communication with AIG, Allison attended two key meetings with AIG’s
executives to discuss compensation. In November 2009, after the first
determination was issued, he met in New York City with Special Master Feinberg
and AIG’s Board of Directors and CEO. Allison said that because of
miscommunication, AIG’s board felt the Special Master was not aware of its
challenges and that there was an issue of a lack of trust. Benmosche told
SIGTARP that he told Allison after the board meeting that “this cannot continue,”
“it was ridiculous,” and “that the Government is too involved and nothing makes
sense.” Benmosche also said he told Allison that he was running out of patience,
Allison asked him to “give me time,” and Benmosche told him he had a month,
from November to December.
Benmosche also told SIGTARP that he met with FRBNY’s Dahlgren and her
team and asked them to tell Treasury to be flexible. He also told SIGTARP that
he warned Dahlgren, “If you want to get your money back, you had better fix
this.” In December 2009 in Washington, D.C., AIG CEO Benmosche met with
Special Master Feinberg, an OSM staff member, Allison, and Millstein. While
this meeting took place after OSM’s October 22, 2009, determination, Benmosche
told SIGTARP that this meeting was about 2009 pay because there were
unresolved issues in play, particularly surrounding the pay of AIG’s President and
the CEO of one of AIG’s subsidiaries. Allison also told SIGTARP that the
purpose was to finalize OSM’s AIG pay determinations.
Subsequent to this meeting, in a December 21, 2009, supplemental determination
letter to AIG, the Special Master reversed his written October 22, 2009,
determination letter granting phantom stock to AIG employees and instead
granted AIG’s new request to pay employees with AIG common stock. The
supplemental determination said that common stock would provide employees
with incentives to maximize the value of AIG and, therefore, its ability to repay
the taxpayer.

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In 2010, AIG Proposed Cash Salary Increases and Again
Pushed Back Against Executive Pay in AIG Common Stock,
Requesting Instead an Alternative Form of Stock Salary
On January 3, 2010, The New York Times reported in an interview with Feinberg
that AIG thought its stock was worthless and that Feinberg agreed that AIG
employees would get a form of phantom stock reflecting only four AIG operating
units that were profitable and not part of AIG’s downfall. Feinberg told
SIGTARP that in 2010, after the article, AIG was even more reluctant to take
stock salary. In addition, AIG had entered into an agreement to sell some of the
subsidiaries that were in the basket stock.
On January 15, 2010, AIG submitted its 2010 proposal including cash salary
increases and requested another alternative form of stock salary that, according to
AIG’s 2010 determination letter, reflects the value of common stock and “hybrid
securities.” At this time, AIG’s stock was trading at an adjusted price of $23.51.
OSM approved this new form of stock compensation, along with cash salaries, for
all but one AIG employee.
With significant turnover in employees who fell within the Top 25, AIG proposed
excessive cash salaries, citing the desire to keep 2009 salaries ($350,000 to
$1.5 million) for those new to the Top 25 designation. AIG proposed that nine of
its Top 25 employees be paid more than $500,000 in cash salary. For three
employees, AIG proposed cash raises that would result in 100% to 140%
increases over 2009. AIG proposed stock salaries based on the hybrid basket
stock ranging from $200,000 to $7.7 million for certain new Top 25 employees.
For three employees who were part of AIG’s 2009 Top 25, AIG proposed stock
salary increases between 65% and 87% over 2009 OSM-approved pay. For these
three employees, OSM found this amount was excessive in comparison to
similarly situated peers and inconsistent with public interest. AIG also proposed
to limit long-term incentive awards to 10% of total 2010 compensation, but OSM
rejected the request.
OSM approved large compensation packages for AIG employees in 2010, even
though 18 of the employees were scheduled to receive up to $4.7 million in
retention awards and other payments. In 2009, OSM gave approval that five
employees could be paid compensation of more than $1 million in cash and stock,
and the other eight fell well under that. However, in 2010, of AIG’s Top 25,
OSM approved 21 of 22 employees to receive between $1 million and
$7.6 million (and $10.5 million for CEO Benmosche), with 17 of those pay
packages exceeding $3 million.
OSM approved cash salaries of more than $500,000 for five AIG employees,
including a $3 million cash salary for AIG’s CEO Benmosche, $700,000 for Kris

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Moor, AIG’s Executive Vice President for General Insurance, and $1.5 million,
$1 million, and $700,000 for other AIG employees. With respect to other
employees, OSM approved them to receive more than $500,000 because they
were considered “critical.” OSM approved 12 of AIG’s 23 employees to be paid
cash salaries between $442,874 and $500,000 and also approved for all but three
employees more than $1 million in stock (between $1.3 million and $5.1 million).
In 2010, AIG proposed that four AIGFP employees be paid cash salaries of
$500,000 and stock salaries ranging from $2 million to $3 million that could be
cashed out after one year. OSM rejected the proposal to sell stock salary after one
year and also refused to give AIGFP employees, with the exception of one
employee, $500,000 cash salaries. The Special Master ruled that the proposed
salaries, combined with upcoming retention awards, would be inconsistent with
the public interest, and he generally froze salaries at 2007 levels. However,
despite freezing AIGFP cash salaries, OSM approved four AIGFP employees to
receive more than $3 million in stock salary, and two AIGFP employees to
receive $758,067 and $1.3 million in stock salary. In contrast, in 2009, OSM
approved only cash salaries frozen at 2007 levels with no additional compensation
for AIGFP employees.
However, 18 AIG employees were scheduled to receive retention awards and
other payments, including the six AIGFP employees. Despite freezing the AIGFP
cash salaries, OSM approved large pay packages of cash and stock for employees
receiving retention awards and other payments up to approximately $4.7 million.
Table 4 is a side-by-side look of the compensation approved by the Special
Master as well as the awards these employees were scheduled to receive under
grandfathered contracts that existed prior to the Recovery Act.

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TABLE 4

2010 AIG TOP 25 TOTAL COMPENSATION APPROVED BY THE SPECIAL MASTER AND AUTHORIZED CASH
RETENTION AWARDS AND OTHER PAYMENTS SCHEDULED TO BE PAID UNDER PRE-RECOVERY ACT
CONTRACTS
AIG
Employees

Cash
Salary

Stock
Salary

Long-Term
Restricted Stock

1

$3,000,000

$4,000,000

$3,500,000

2

450,000

4,062,500

1,500,000

3

700,000

3,050,000

1,250,000

4

177,799

3,322,201

–

5

241,933

758,067

–

6

125,000

3,468,750

–

7

495,000

4,485,000

1,020,000

8

450,000

3,062,500

–

9

450,000

1,437,500

625,000

10

100,000

3,500,000

–

11

1,000,000

3,000,000

–

12

495,000

3,731,250

1,375,000

13

700,000

5,000,000

1,900,000

14

1,500,000

2,520,000

1,980,000

15

475,000

2,156,250

875,000

16

495,000

3,656,250

850,000

17

500,000

1,300,000

–

18

475,000

4,568,750

–

19

495,000

5,149,000

1,156,000

20

312,500

–

–

21

475,000

2,967,932

854,000

22

442,874

2,117,126

640,000

23

400,000

800,000

1,150,000

$13,955,106

$68,113,076

$18,675,000

Total

Authorized Cash Retention
Awards and Other Payments [1]

Total [2]

Information
Redacted

(See note)

(b)(4)

$36,346,503

$141,069,768

[1] In addition to retention awards, there were authorized payments under AIG’s Senior Partners plan.
[2] Total includes a payment for carried interest to one employee.
Note: In response to a draft of the AIG-specific portions of this report, AIG raised concerns about the inclusion of individual cash retention and
other cash award data on the grounds that it was confidential financial information that had not previously been publicly disclosed and that
disclosure of individual awards could harm AIG. SIGTARP is cognizant that the United States taxpayers currently own a significant
percentage of AIG and thus out of an abundance of caution has worked with AIG to make redactions of individual employee award data
outside of OSM’s determinations.
Sources: SIGTARP analysis of data from AIG and OSM.

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In 2011, AIG Proposed Cash Salaries in Excess of $500,000
for Five Employees and Proposed Compensation in the Form
of AIG Common Stock
On January 14, 2011, Treasury restructured (also called recapitalized) the
Government’s ownership interests in AIG that would eventually lead to AIG’s
repayment of debts owed to FRBNY and Treasury holding approximately 92% of
AIG common stock, which Treasury could sell into the market. In its
January 31, 2011, proposal to OSM, AIG stated that in light of the recapitalization
plan, it proposed the use of AIG common stock for 2011 stock salary, and OSM
agreed.
AIG’s 2011 proposal for pay of its Top 25 employees was markedly different
from its proposals in the two prior years, for the most part proposing what OSM
had approved in 2010. AIG only proposed cash salaries in excess of $500,000 for
five employees, the same number of employees who were approved to receive
more than $500,000 in cash salary in 2010. AIG again proposed that
compensation in long-term restricted stock tied to performance measures be
limited to 10% of total compensation.
OSM approved AIG CEO Benmosche to have the same $10.5 million
compensation package that was approved in 2009 and 2010 on the basis that it
was the same compensation he had previously received. For the rest of AIG’s
Top 25 employees, OSM approved total compensation packages of cash and stock
that, with one exception, ranged from $2.5 million to $8 million.40 Of these pay
packages, OSM approved $8 million in total compensation for two AIG
employees, $7 million in total compensation for two additional AIG employees,
and $5 million to $6.3 million in total compensation for seven AIG employees.
Of these total compensation packages, OSM approved cash salaries proposed by
AIG including salaries over $500,000 for five employees, the same number of
employees approved to receive more than $500,000 in 2010. The cash salaries
approved by OSM over $500,000 include: a $3 million cash salary for AIG CEO
Benmosche, a cash salary of $1.8 million for Peter Hancock, CEO of AIG’s
Chartis subsidiary, $700,000 for Kris Moor, Vice Chair of Chartis, and $700,000
and $975,000 for the remaining two employees.
OSM also approved cash salaries of $500,000 for 10 AIG employees, cash
salaries of $400,000 to $495,000 for seven AIG employees, and a cash salary of
$125,000 for one AIG employee. In approving AIG’s proposed cash salaries,
OSM found that “in general, the proposed cash salaries target the 50th percentile
of cash salaries paid to persons in similar positions or roles at similar entities.”
40

OSM approved total compensation for one AIG employee at $1.5 million.

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OSM also approved the cash raises for two employees on the basis of “enhanced
responsibilities and expanded roles of the affected employees.” In setting cash
salaries, OSM did not need to consider retention awards under pre-Recovery Act
contracts because there were none scheduled. In addition to the cash salaries,
OSM approved significant compensation to AIG’s Top 25 in the form of stock
salary and long-term restricted stock.41
AIG also proposed that employees receive AIG common stock for 2011 stock
salary, in light of the company’s recapitalization plan. OSM approved AIG’s
request, ruling that AIG’s common stock is consistent with the structure of stock
salary payable by the other exceptional assistance recipients.42 The company also
proposed that most employees receive long-term restricted stock representing
10% of their total 2011 compensation. However, OSM generally ruled that the
10% proposal failed to satisfy the IFR’s principle that an appropriate portion of
compensation should be performance based.43

41

OSM rejected AIG’s proposed stock salaries and reallocated stock salary between stock salary and long-term
restricted stock. However, for some AIG employees, OSM did approve a lower allocation of long-term
restricted stock.
42
The 2011 determination letter says that in certain cases, the Special Master concluded that proposed stock
salary amounts were not justified and that a portion of compensation should be reallocated from stock salary
to long-term restricted stock.
43
The 2011 determination letter says that in the case of certain employees, OSM acknowledged that a lower
allocation of long-term restricted stock was appropriate.
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Impact of the Special Master’s
Determinations on the Exceptional
Assistance Recipients
This section discusses the impact of the Special Master’s determinations on the
exceptional assistance recipients. In testimony to the House Committee on
Oversight and Government Reform, Special Master Feinberg said that while his
authority did not go beyond the seven exceptional assistance companies, he hoped
that his compensation determinations would be used as a model by other
companies.

Maintaining the Special Master’s Framework
Special Master Feinberg testified to Congress that he determined a new
compensation regime be implemented for the seven companies that received
exceptional assistance under TARP. The regime he envisioned was a replacement
of guaranteed compensation with performance-based compensation designed to
tie the individual executive’s financial opportunities to the long-term overall
financial success of each company. He also envisioned that short-term profits
would give way to longer-term financial stability and success. He told Congress
that he hoped that his individual compensation determinations would be used, in
whole or in part, by other companies in modifying their own compensation
practices. He testified that he believed that his determinations were a useful
model to guide others.
Chrysler, Citigroup, and Ally executives said they would not fully follow
the Special Master’s determination framework after they exited TARP.
Chrysler executives told SIGTARP that the company executives’
mentality was, “Let’s get through this.” The executives also said that the
firm’s cash compensation was not competitive and the company would be
unable to retain employees at its current compensation levels.
Citigroup’s then-Vice Chairman Edward J. Kelly, III, told SIGTARP that
there were important principles that emerged from OSM’s determinations,
and that the company would maintain items such as clawbacks, deferred
compensation, and performance tests. But the executive also said that
company executives were less certain whether the company would use
stock salary as a form of deferred compensation. Ally CEO Carpenter
said he agreed with paying for long-term performance, but that certain
clawbacks are not realistic.

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Bank of America CEO Brian T. Moynihan told SIGTARP that the company
enhanced compensation in early 2010 and assessed best practices of the industry.
He said the company did not necessarily follow the Special Master’s practices
after it exited TARP, but that some of OSM’s components were involved. He
said the company already had a robust compensation structure with clawbacks.
He also told SIGTARP the company did away with the Special Master’s $500,000
cash salary limit because it limited the company’s ability to attract and retain
qualified executives.
GM and AIG executives were much less nuanced in their dissents with OSM’s
framework: GM CEO Whitacre said that GM would not maintain any of the
Special Master’s practices once the company exits TARP. AIG CEO Benmosche
said the Special Master’s practices would have no lasting impact. He also said,
however, that pay and performance must be linked, and if the majority of income
is fixed, or guaranteed, then pay is not linked to performance.

Companies’ Ability To Recruit and Retain
OSM reported in its March 23, 2010, press release, which accompanied the
Special Master’s 2010 Top 25 determinations, that 84% of executives included in
the Special Master’s 2009 Top 25 determinations remained in the Top 25 for 2010
and were subject to the Special Master’s 2010 Top 25 determinations. While the
Special Master advertised this retention rate as a success, the rate itself has little
meaning because it reflects only five of the seven companies and does not account
for employees who departed companies before the 2009 determinations.
The Special Master commented that OSM had data to prove that 85% of the
individuals who had threatened to leave in 2009 stayed in 2010. OSM calculated
the retention rate by comparing the number of Top 25 employees who remained
employed by their companies from 2009 to 2010. The figure does not include
Bank of America and Citigroup, both of which repaid in 2009 and could not be
factored into the analysis.
OSM provided the data for Table 5 on the following page, which shows the
number of Top 25 employees who remained at the companies for both years.

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TABLE 5

RETENTION DATA

Company

Top 25 Employees
Subject to 2009
Determinations

2009 Top 25
Employees
Departed by
2010

Employees
Remaining
in 2010

Retention Rate
of Top 25
Employees

AIG

13

5

8

62%

Chrysler

25

2

23

92%

Chrysler Financial

22

5

17

77%

GM

22

2

20

91%

Ally

22

2

20

91%

104

16

88

85%

Total
Source: Treasury.

While the Special Master publicized OSM’s retention rate as a success in keeping
executives in their seats, the numbers do not tell the whole story. A GM
executive told SIGTARP that the drama surrounding executive compensation –
with citizens protesting at the homes of executives from companies that received
Government assistance, such as AIG – is one reason that some people did not
apply for jobs at GM. He said that certain potential candidates for GM’s CFO
position did not interview with the firm because of the executive compensation
rules.
AIG’s CEO told SIGTARP: “You don’t always lose people, but you lose their
hearts and minds. Sometimes people just sit at their desks and watch it burn to
the ground because they don’t have a better job. Sometimes, people do go out the
door. … So maybe no one left, but if they are not creative in their thinking, we
will lose.” AIG’s then-Chairman of the Board even complained that OSM’s rules
made little sense and hurt the firm. In a February 2010 Chairman’s Message to
shareholders, he wrote: “While we can pay the vast majority of people
competitively, on occasion, [OSM’s] restrictions and [the Special Master’s]
decisions have yielded outcomes that make little business sense. For example, in
some cases, we are prevented from providing market competitive compensation to
retain some of our own most experienced and best executives. This hurts the
business and makes it harder to repay the taxpayers.”
Bank of America’s CEO told SIGTARP that the pay determinations were
shortsighted and that he was disappointed in the pay restrictions. He said that the
determinations were unfair to the executives, and that Bank of America would be
unable to keep talented and loyal personnel.

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Citigroup CEO Pandit told SIGTARP that “keeping the team together…was a big
deal for management.” He said that some employees in the top tiers of the firm
left Citigroup, and he acknowledged that executive compensation restrictions
might have been a contributing factor. Citigroup’s then-Vice Chairman Kelly told
SIGTARP that executive compensation was a barrier to hiring and retaining
qualified managers and well-known traders. A Citigroup official told SIGTARP
that out of Citigroup’s Top 25 employees, the company lost only a few
employees.

OSM’s Limited Effect on Citigroup and Bank of America
OSM’s decisions had a limited effect on the executive compensation practices of
Citigroup and Bank of America after they exited TARP. Both companies were
subject to the Special Master’s determinations from October 22, 2009, through
December 31, 2009. Citigroup officials told SIGTARP that from the beginning,
Citigroup’s perspective was that it would be subject only to the Special Master’s
determinations for 2009. Once the two banks exited the exceptional assistance
program TIP, and OSM’s regulations disappeared, salaries and bonuses climbed.
For example:




The Special Master approved for Citigroup’s Top 25 group in 2009
$39.5 million in long-term restricted stock. After exit, COP said that just the
top 15 executives received a combined $50 million in stock bonuses.



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Under the Special Master in 2009, the annual stock salary for Citigroup’s
Top 25 employees ranged from $0 to approximately $5.7 million each.
However, as reported by COP, after exit, annual stock salary for Citigroup’s
named officers ranged from $4.2 million to $9 million each.

Long-term restricted stock under the Special Master totaled $19.3 million for
Bank of America’s Top 25. After exit, according to COP, just four of its
executive officers received long-term incentive awards totaling $35.7 million.
SIGTARP also found that one of those executives received a 70% salary
increase in two steps after Bank of America exited TARP, but within eight
months after his second raise, he left the firm under a realignment strategy that
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Beyond TARP: Dodd-Frank Act’s Executive Compensation
Provisions
When SIGTARP asked Special Master Feinberg whether he believed that the
companies would adopt elements of OSM’s determinations when they are no
longer under OSM purview, he answered, “No.” He also said that the long-term
impact will likely come from the regulators or other authorities.
On July 21, 2010, Congress enacted the Dodd-Frank Wall Street Reform and
Consumer Protection Act (“Dodd-Frank Act”), which enhances disclosure and
reporting requirements and prohibits certain incentive-based payment
arrangements that regulators determine encourage inappropriate risks by covered
financial institutions. Specifically, the Dodd-Frank Act requires public
companies to disclose in public filings: (1) the median total annual compensation
of all employees other than the CEO; (2) the annual total compensation of the
CEO or equivalent position; and (3) the ratio between the median compensation
of all employees and the CEO’s total compensation. The Dodd-Frank Act also
requires that public companies make clear disclosures on executive compensation
to shareholders in materials for the annual meeting of shareholders, and nonbinding shareholder votes to approve executive compensation and certain golden
parachutes.
The Dodd-Frank Act’s provisions on executive compensation are to be
implemented in new regulations by several Federal regulators, and some of those
regulators have already implemented or proposed rules.44 The Dodd-Frank Act
requires that the new Federal regulations require certain financial institutions to
disclose the structures of all incentive-based compensation sufficient to determine
whether the compensation structure provides an executive officer, employee,
director, or principle shareholder with excessive compensation, fees, or benefits,
or could lead to material financial loss.45 Federal regulators are also required to
develop regulations that prohibit any type of incentive-based payment
arrangement that the regulators determine encourages inappropriate risk.

44

The regulators required to promulgate regulations under this provision of Dodd-Frank include: Board of
Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Board of
Directors of the Federal Deposit Insurance Corporation, the Director of the Office of Thrift Supervision
(agency was abolished in October 2011), the National Credit Union Administration Board, the Securities and
Exchange Commission, and the Federal Housing Finance Agency.
45
Covered financial institutions include: Depository institutions or depository institution holding companies,
broker-dealers, credit unions, investment advisors, the Federal National Mortgage Association, the Federal
Home Loan Mortgage Corporation, and other financial institutions that the appropriate Federal regulators,
jointly, by rule, determine should be treated as covered. However, the requirements do not apply to covered
financial institutions with assets of less than $1 billion.
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Conclusions and Recommendations
Treasury created OSM in June 2009 in a charged atmosphere after several major
TARP recipients paid billions in bonuses causing a public outrage that resonated
with the Administration and Congress. Calling the payment of the bonuses
“shameful,” the President on February 4, 2009, announced that the Government
would cap the cash salaries of top executives at companies that received
“exceptional assistance” under TARP at $500,000. For seven companies, the
amount and nature of their bailout were considered “exceptional.” They were
AIG, Bank of America, Citigroup, General Motors, Chrysler, Chrysler Financial,
and Ally. Congress also reacted to the bonuses by amending pending Recovery
Act legislation to further restrict compensation for top employees of TARP
recipients. The Recovery Act’s bonus restrictions did not apply to future awards
promised under employment contracts that existed prior to February 11, 2009. In
March 2009, after reports that AIG paid $168 million in employee retention
awards under pre-Recovery Act contracts, people picketed the homes of AIG
executives, and some employees were threatened. OSM was created in the
aftermath of this tumultuous time to rein in excessive compensation at TARP
companies. Kenneth Feinberg originally served as the Special Master.46
However, OSM’s authority was narrowly limited to setting pay for the Top 25
employees, and approving compensation structures for the Top 26-100, at the
seven exceptional assistance TARP companies. OSM’s work had little effect on
Citigroup and Bank of America, which quickly exited TARP, in part to avoid
OSM’s restrictions. AIG, GM, and Ally currently remain under OSM’s oversight,
and lessons learned could affect both how they are treated by OSM and how
taxpayers are protected in the event of a future crisis.
SIGTARP found that the Special Master could not effectively rein in excessive
compensation at the seven companies because he was under the constraint that his
most important goal was to get the companies to repay TARP. Although
generally he limited cash compensation and made some reductions in pay, the
Special Master still approved total compensation packages of cash and stock in
the millions. The Special Master was operating under inherently inconsistent
principles. Special Master Feinberg said that the companies pressured him to let
the companies pay executives enough to keep them from quitting, and that
Treasury officials pressured him to let the companies pay executives enough to
keep the companies competitive and on track to repay TARP funds. Feinberg
testified before Congress that “Congress felt that the single most important thing I
could do is get those seven companies to repay the taxpayer. … Secretary
Geithner made that clear. Congress made that clear. The Administration made

46

Feinberg was succeeded by Patricia Geoghegan, who currently serves as Acting Special Master.

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that clear.” He also testified that the tension between reining in executive
compensation while allowing necessary compensation was a very difficult task.
Given OSM’s overriding goal, the seven companies had significant leverage over
OSM by proposing and negotiating for excessive pay packages based on historical
pay, warning Special Master Feinberg that if he didn’t provide competitive pay
packages, top officials would leave and go elsewhere.
In proposing high pay packages based on historical pay prior to their bailout, the
TARP companies failed to take into account the exceptional situation they had
gotten themselves into that necessitated taxpayer bailout. Rather than view their
compensation through the lens of partial Government ownership, the companies
argued that their proposed pay packages were necessary to retain or attract
employees who were crucial to the company paying back TARP. For example, in
2009, AIG proposed cash raises for several of its Top 25 employees and the
ability to sell stock salary immediately. Ally officials also pushed for high pay,
despite knowing that Feinberg was concerned that a majority of the company’s
Top 25 employees were part of the problem that resulted in Ally’s need for a
bailout. Ally CEO Michael Carpenter told SIGTARP, “We had an individual who
was making $1.5 million total compensation with $1 million in cash. Cutting this
person’s salary to $500,000 cash resulted in the person being cash poor. This
individual is in their early 40s, with two kids in private school, who is now
considered cash poor. … We were concerned that these people would not meet
their monthly expenses due to the reduction in cash.” In a few rare instances, the
companies took it upon themselves to limit pay. In 2010, Ally’s board told the
new CEO that he would be paid stock but no cash. Citigroup’s CEO told
Congress that he would only take $1 in cash salary.
Under conflicting principles and pressures, despite reducing some pay, the Special
Master approved multimillion-dollar compensation packages for many of the
Top 25 employees but tried to shift them away from large cash salaries and
toward stock. OSM approved pay packages worth $5 million or more over the
2009 to 2011 period for 49 individuals. In trying to keep the companies
competitive, the Special Master told SIGTARP that the “obvious” starting point
was to set total compensation at the 50th percentile for similarly situated
employees. The decision to use the 50th percentile appeared to be based on OSM
staff’s experience with setting executive compensation rather than on empirical
evidence. Attempting to keep employees’ “skin in the game,” OSM apportioned
total pay between cash and stock, using what Feinberg called a “prescription” that
cash salaries should not exceed $500,000, except for good cause.47 According to
OSM, in some instances it was appropriate to increase cash salary. Although
OSM developed general prescriptions, OSM did not have any established criteria
47

OSM approval was not required for proposed annual compensation structures of no more than $500,000
(apart from long-term restricted stock, as defined in the IFR) for employees in the Top 26-100.

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for applying those prescriptions at the beginning of the process. Because there
were so many differences in the companies’ situations, companies pushed back on
the general prescriptions and OSM made many exceptions to the general
prescriptions on a case-by-case basis.
Some companies pushed back on OSM by claiming that their compensation
should be higher than the 50th percentile. The companies’ beliefs may relate to
what has been called the “Lake Wobegon Effect,” named after radio host Garrison
Keillor’s fictional hometown, where “all the children are above average.” OSM
officials told SIGTARP, “If they were better than the 50th percentile, they
wouldn’t be having discussions with OSM in the first place.” Although there is
debate over whether the 50th percentile is appropriate, SIGTARP was unable to
determine whether OSM consistently applied the 50th percentile criterion because
OSM did not maintain complete records of the market-based data it used.
SIGTARP found that although the Special Master created a prescription that cash
salaries should not exceed $500,000 except for good cause, companies proposed
that their employees be paid higher cash salaries, claiming that the employees
were critical to the company’s success. For 10 employees in 2009, and 22
employees in 2010 and 2011, GM, Chrysler Financial, Ally, and AIG convinced
OSM to approve cash salaries greater than $500,000 each.48 With the exception
of Bank of America’s retiring CEO, the Special Master approved cash salaries in
excess of $500,000 for the CEO of each company who asked for a higher salary
and approved millions of dollars in CEO stock compensation. SIGTARP also
found that OSM was inconsistent in approving cash salaries in excess of
$500,000. For at least GM and Ally, OSM picked a “ballpark number” of
employees who could be paid more than $500,000 in cash and left it to the
companies to choose those employees. According to GM officials, for some
employees, OSM adjusted salaries down to just under $500,000.
AIG’s proposed compensation for its Top 25 employees did not reflect in any way
the unprecedented nature of AIG’s taxpayer-funded bailout and the fact that
taxpayers owned a majority of the company. AIG’s proposed compensation was
excessive. In 2009, AIG wanted cash salary raises ranging from 20% to 129% for
one group of employees and from 84% to 550% for another group. AIG proposed
high cash salaries, even though all but two of the 13 employees49 in the Top 25
were scheduled to receive significant retention awards and other payments under
pre-Recovery Act contracts. AIG proposed pay comparable to Goldman Sachs,
JPMorgan, and Morgan Stanley.50 In 2010, AIG again proposed significant
48

Not all four companies received approval for cash salaries greater than $500,000 each year.
Often the “Top 25” in a company had fewer than 25 employees because some had left the company.
50
AIG also proposed that heads of its business units be paid in the 50th to 75th percentile of pay for CEOs of
other companies, which OSM rejected. SIGTARP was unable to test whether the 50th percentile was
appropriately applied to AIG because of the lack of OSM documentation.
49

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increases in cash salaries, and asked that nine employees be paid more than
$500,000 in cash, and that three employees receive cash raises of 100% to 140%
over the salaries approved by OSM in 2009.
Feinberg told SIGTARP that AIG was anti-stock salary and wanted to pay
employees in cash. Feinberg said that in his 2009 discussions with AIG, AIG
officials indicated that its common stock was essentially worthless. Feinberg told
COP that AIG common stock “wasn’t worth enough to appropriately compensate
top officials.” Feinberg told SIGTARP that OFS stressed that the stock salary and
grandfathered contracts would jeopardize AIG. Feinberg told SIGTARP that he
was pressured by other senior Treasury officials and was told to be careful, that
AIG owed a fortune, and that Treasury did not want it to go belly up.51 He further
stated that Treasury officials felt those amounts were relatively small compared to
the Government’s exposure in AIG. Despite these pressures, Feinberg said that
no one trumped his decisions.
CEO Benmosche explained to SIGTARP the reasoning for AIG’s decision not to
restructure the awards in 2009: “I got a message that Ken [Feinberg] had a desire
to take away retention payments. I had to make sure my people got paid. … I had
10 senior executives that lost $168 million in pay. We had people that were
completely wiped out when the stock fell. … The stock didn’t have any value to
the employees, as these people were getting stock that they couldn’t sell because
it was not vested. Ken Feinberg wanted to be able to tell Congress that no
retention payments would be paid. But the retention payments were the only way
to pay and keep people. They were not retention payments per se, but they were
bonuses that they would have normally got ... [AIG]FP was the primary cause, but
everybody lost. I told him you can’t cut salaries so much and put pensions in
long-term stock – people need something to live on ... We succeeded in keeping
all retention payments. The penalty was very low salaries.”
Senior Treasury officials helped AIG develop a “phantom” stock based on AIG’s
valuable subsidiaries. Although Treasury officials were involved to protect
taxpayers’ investment in AIG, AIG stood out as the only one of the seven
companies in which senior Treasury officials intervened in OSM’s process. It
appeared to be due to the sheer size of the Government’s investment and requests
by AIG’s CEO that the officials intervened. Feinberg approved the use of
phantom stock for stock salary as part of six employees’ pay packages in 2009,
citing the need for employee retention. Feinberg then agreed to AIG’s request to
use AIG common stock for stock salary. In 2010, AIG requested approval to use
something other than AIG common stock, proposing a hybrid security. In 2011,
AIG proposed using AIG common stock for pay, citing Treasury’s plans to

51

For details regarding the Government’s investment in AIG and the firm’s recapitalization plan, see
Appendix D.

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restructure the Government’s investment in AIG from preferred stock to common
stock, and later sell the common stock in the market.
In 2009, OSM approved total compensation of cash and stock of more than
$1 million each for five AIG employees. This included the largest pay package
and cash salary ever approved by the Special Master ‒ a $10.5 million pay
package for AIG’s new CEO that included a $3 million cash salary. OSM
approved compensation ranging from $4.3 million to $7.1 million each for four
AIG employees who that year were also scheduled to receive cash retention
awards of up to $2.4 million. For the other eight AIG employees, OSM approved
pay packages that fell well under $1 million. OSM was tough on employees of
AIGFP, the unit whose losses contributed to the need for Government
intervention. For five AIGFP employees who were scheduled to receive retention
awards of up to approximately $4.7 million, OSM froze their salaries at 2007
levels and gave them no stock.
In 2010, OSM also cut AIG’s proposed salaries, but compared to 2009, approved
much larger compensation packages for AIG’s Top 25 employees, despite the fact
that 18 of these employees were scheduled to receive retention awards and other
payments under pre-Recovery Act contracts. In 2010, OSM approved 21 of
AIG’s 22 employees to receive between $1 million and $7.6 million, with 17 of
those pay packages exceeding $3 million. OSM also approved $10.5 million in
compensation for CEO Benmosche. OSM approved cash salaries over $500,000
for five employees, and cash salaries ranging from $442,874 to $500,000 for 12
employees. OSM approved all but three of AIG’s Top 25 employees to receive
stock salary ranging from $1.3 million to $5.1 million each. Although OSM still
froze salaries for AIGFP employees at 2007 levels, OSM approved four AIGFP
employees to be paid more than $3 million in stock salary, and two AIGFP
employees to receive $758,067 and $1.3 million in stock salary. OSM generally
approved these same pay packages for 2011 for AIG, which included the CEO’s
same compensation as in earlier years, compensation packages of $8 million each
for two employees, compensation packages of $7 million each for two employees,
and compensation packages of $5 million to $6.3 million each for seven
employees.
OSM’s pay determinations are not likely to have long lasting impact at the seven
TARP exceptional assistance companies or other companies. OSM’s jurisdiction
is fleeting, disappearing once the firm is no longer a recipient of exceptional
assistance under TARP. It is already clear that OSM’s decisions on compensation
had little effect on two of the nation’s largest banks. After being subject to
OSM’s review from October 22, 2009, to December 31, 2009, Citigroup and
Bank of America exited TARP, in part to escape OSM’s compensation
restrictions. Once out of TARP, salaries and bonuses climbed. According to a
report by COP, Citigroup paid its named officers annual stock salary ranging from

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$4.2 million to $9 million each and the top 15 executives received a total of
$50 million in stock bonuses. Bank of America discarded the $500,000 cash
salary cap and increased the cash salary of its CEO and other executives. Bank of
America paid four of its executive officers a total of $35.7 million in long-term
incentive awards.
Despite once hoping to change the compensation regime at the seven companies
and have his determinations serve as a useful model for other companies,
Feinberg told SIGTARP that he did not expect that the seven companies would
adopt elements of OSM’s compensation determinations when they are no longer
under TARP. Today, only AIG, GM, and Ally remain subject to OSM’s review.
CEOs at AIG and GM told SIGTARP that they would not maintain OSM’s
practices once their company exits TARP. OSM has had little ability to influence
compensation practices at other companies outside of the seven. Feinberg told
SIGTARP that the long-term impact will likely come from regulators.
While historically the Government has not been involved in pay decisions at
private companies, one lesson of this financial crisis is that regulators should take
an active role in monitoring and regulating factors that could contribute to another
financial crisis. Treasury Secretary Timothy F. Geithner testified before COP that
executive compensation played a material role in causing the crisis because it
encouraged excessive risk taking.
As a nation, we are not out of the woods because many former TARP companies
remain as systemically important financial institutions (“SIFIs”). These
companies have a responsibility to reduce risk taking that could trigger systemic
consequences, including excessive cash compensation and other compensation
not tied to long-term performance. The Dodd-Frank Act requires regulations on
executive compensation and other regulations for SIFIs. These regulations may
force these companies to change their compensation practices, but the regulations
required under the Dodd-Frank Act are not final, and their effectiveness remains
to be seen. For institutions that exited TARP, the responsibility for reforming
compensation practices falls on the companies and their regulators. The
regulators’ strength and leadership in the area of executive compensation are
crucial. Taxpayers are looking to the regulators to protect them so that history
does not repeat itself.

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Recommendations
1. To ensure that the Office of the Special Master for TARP Executive
Compensation consistently grants exceptions to the $500,000 cash salary cap,
the Office of the Special Master should substantiate each exception requested
and whether the requests demonstrate or fail to demonstrate “good cause.”
2. The Office of the Special Master should better document its use of market
data in its calculations. At a minimum, the Office of the Special Master
should prospectively document which companies and employees are used as
comparisons in its analysis of the 50th percentile of the market, and it should
also maintain records and data so that the relationship between its
determinations and benchmarks are clearly understood.
3. The Office of the Special Master should develop more robust policies,
procedures, or guidelines to help ensure that its pay determination process and
its decisions are evenhanded. These measures will improve transparency and
help the Office of the Special Master consistently apply the Interim Final Rule
principles of “appropriate allocation,” “performance-based compensation,”
and “comparable structures and payments.”

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Management Comments
Treasury through the Office of the Special Master for TARP Executive
Compensation provided an official written response to this report in a
letter dated January 20, 2012, which is reproduced in full in Appendix G.
OSM’s letter states that SIGTARP’s report “provides a useful and detailed
historical review of OSM’s efforts.” OSM states it is succeeding in
achieving its mission and restates comments previously made public in
OSM releases.
OSM agreed with SIGTARP’s first two recommendations and said that it
will memorialize in its records its justification for approving or
disapproving each specific request for a cash salary in excess of $500,000,
and that it already has begun to preserve the market data on which it relies.
As to SIGTARP’s third recommendation, OSM asserted that SIGTARP’s
report insufficiently acknowledges the policies, procedures, and guidelines
that OSM developed and outlined in its Top 25 determination letters and
accompanying fact sheets for each of 2009, 2010, and 2011. OSM stated
that it “will carefully focus on how it can further develop and articulate its
policies, procedures, and guidelines.”
SIGTARP’s report explicitly acknowledges those documents, by stating
“OSM’s methodology and criteria were explained in several different
documents ‒ the institution-specific determination letters, a ‘fact sheet’
summarizing some key steps and decisions, and a three-page document
issued several months later ‒ but the documents do not completely lay out
OSM’s process, methodology, and criteria.” Each of these documents
must be pieced together to determine OSM’s methodology, and even then
the documents do not completely set forth OSM’s process, methodology,
and criteria. For example, it is not clear in any of those documents how
OSM determines a similarly situated company. Those documents also do
not address OSM’s criteria for approving cash salaries over $500,000.
Clear policies, procedures, and guidelines that set forth the rationale for
OSM’s decision making promote consistency and accountability, and are
necessary in order to permit effective oversight.
OSM’s letter response makes three statements with which SIGTARP
strongly disagrees: (1) the report fails to highlight the use of stock-based
compensation; (2) the report mischaracterizes OSM’s $500,000 guideline
on cash salaries; and (3) the report incorrectly describes OSM’s decisions
with respect to stock salary at AIG and other companies.

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First, in many instances, the report states that OSM used stock-based
compensation. The report states that OSM tried to shift compensation
packages “away from large cash salaries and toward stock.” The report
describes OSM’s three-step methodology, stating, “To tie individual
compensation to long-term company success, OSM used long-term
restricted stock contingent on the employee achieving specific
performance criteria.” OSM’s specific determinations that included stockbased compensation are described in detail in the report.
Second, the report does not mischaracterize OSM’s $500,000 guideline on
cash salaries. According to its letter response, OSM claims a
mischaracterization on the basis that “the $500,000 target was a
discretionary guideline that OSM adopted, not a provision of any statute or
regulation.” However, this statement is not contrary to anything in the
report. Further, OSM stated in its response, “When companies requested
executives be paid cash salaries above $500,000, OSM required
justifications for each individual case, and, without exception, made the
final decision on the amount of each element of compensation after a
detailed review and analysis.”
The report does not mischaracterize the $500,000 figure by stating that it
was a provision of a statute or regulation or that it was not in OSM’s
discretion. The report explicitly states on page 1, “The economic stimulus
legislation did not contain a $500,000 limitation, nor did the Treasury
rules.” The report states that OSM developed what Special Master
Feinberg called a “prescription,” explicitly stating, “OSM set cash salaries
using an OSM prescription that generally salaries should not exceed
$500,000 per year, except for good cause shown.” The report states, “The
decision to limit cash salaries to $500,000 and to increase the proportion
of compensation in the form of stock, Feinberg said, was his decision to
strike a balance between reducing excessive risk and providing enough
compensation to keep employees’ ‘skin in the game.’” The report also
states, “Special Master Feinberg told SIGTARP that he applied criteria
with a ‘healthy dose of discretion’ for company-specific circumstances.”
The report also does not mischaracterize OSM’s decision making on cash
salaries over $500,000. The report states, “The Special Master told
SIGTARP that it was always his decision to approve cash salaries of more
than $500,000, based on names, circumstances, and empirical data.”
However, as stated in the report, “Ally executives told SIGTARP that
OSM gave them a ‘ballpark number’ of two to four employees who could
be paid more than $500,000 in cash salary and that the CEO selected the
employees.” This process is also borne out in internal OSM e-mails.
In one email noted in the report, Special Master Feinberg questioned OSM

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staff: “Can we (should we?) permit GM to go above $500,000 with a
few? … Which ones? Or should I just get to her and tell her we can’t do
it?” As stated in the report, “OSM responded to the Special Master: ‘With
respect to GM, we told them a maximum of five above $500K and four at
$500K. We left it to them to decide which individuals would be taken
down to comply with those restrictions.’” To the extent that OSM
engaged in detailed analysis and review of these individuals picked by the
companies, the report found a lack of documentation supporting why
OSM approved the salary. There was a lack of detail in the justification,
with several of OSM’s justifications listed as “No Change” and “Critical
to Turnaround.” OSM has agreed to remedy these findings by agreeing to
SIGTARP’s first recommendation.
Third, contrary to OSM’s assertions, the report correctly describes OSM’s
decisions with respect to stock salary at AIG and the other companies.
According to its letter, OSM’s basis for that assertion was that OSM “did
not dictate the form that the stock salary would take.” OSM also states in
its response that five of six companies proposed using common stock as
part of the compensation packages, that AIG “proposed different
structures of AIG stock salary,” that “all of these structures complied with
Treasury’s rule,” and that “ultimately the company used a hybrid stock
salary structure only for 2010.” These statements are not contrary to any
statement in the report. The report does not say that OSM dictated the
form that the stock salary would take, or that the salary structures did not
comply with Treasury’s rule. The report brings transparency to the fact
that it was AIG and other Treasury officials who came up with the form of
AIG stock salary, not Special Master Feinberg. For example, the report
notes that Jim Millstein, Treasury’s then-head of restructuring for AIG,
told SIGTARP that he helped develop a “phantom stock,” which did not
exist, for purposes of stock-based compensation, even though AIG had
common stock. The report does not find that the phantom stock was
contrary to any Treasury rule, but rather refers to the phantom stock as a
“different form of stock salary,” the very description OSM gave in their
response to this evaluation. Although the report makes it clear that
ultimately the company only used a hybrid stock salary for 2010, it also
discusses that OSM initially approved the phantom stock salary for six
AIG executives in a written letter of October 22, 2009, that OSM
published. In a December 21, 2009, supplemental determination letter to
AIG, the Special Master granted AIG’s new request to pay the employees
with AIG common stock.

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Appendix A – Scope and Methodology
We performed this evaluation under the authority of Public Law 110-343, as amended, which also
incorporates the duties and responsibilities of inspectors general under the Inspector General Act of
1978, as amended. SIGTARP reviewed the Special Master’s decisions on executive compensation
at companies receiving exceptional financial assistance from the U.S. Government. Pursuant to the
June 2009 Interim Final Rule, the Special Master must review proposed compensation structures and
payments for senior executive officers and the 20 next most highly compensated employees. Our
specific reporting objectives were to assess the criteria used by the Office of the Special Master for
TARP Executive Compensation (“OSM”) to evaluate executive compensation, and assess whether
the criteria were consistently applied to all companies that received exceptional assistance. We
performed work at SIGTARP in Washington, D.C. We also conducted field interviews with current
and former Government officials and executives from companies that received exceptional financial
assistance, in Washington, D.C., Florida, North Carolina, Michigan, and New York. SIGTARP
conducted this evaluation between November 2009 and December 2011. The scope of this
evaluation covered the Special Master’s Top 25 determination process for 2009, 2010, and 2011.
To assess the criteria used by OSM to evaluate executive compensation, we reviewed the Emergency
Economic Stabilization Act of 2008, the American Recovery and Reinvestment Act of 2009, and
Treasury’s Interim Final Rule. SIGTARP also reviewed testimony of the Special Master to identify
other key rules that the Special Master used in the compensation determination process. Through
interviews with the Special Master and OSM staff, and executives of companies that received
exceptional financial assistance, SIGTARP documented the Special Master’s Top 25 determination
process and evaluated how the criteria were used by OSM. We also requested OSM’s policies and
procedures to determine the extent to which policies and procedures existed and to evaluate
sufficiency.
To assess whether the criteria were consistently applied to all companies that received exceptional
financial assistance, SIGTARP analyzed how OSM applied three key prescriptions: to limit cash
salaries that employees would receive to $500,000, unless OSM had good cause for providing
employees cash salaries that went above this limit; to ensure OSM tied non-cash compensation to
performance and delivered other compensation in stock; and to limit employees’ total direct
compensation to not more than the median level of total compensation for employees in similar
companies who have similar jobs. SIGTARP also reviewed OSM’s 2009, 2010, and 2011
determination letters and analyzed compensation data on a company-by-company basis. SIGTARP,
through interviews with company executives, also evaluated the impact determinations had on the
companies, whether the executive compensation restrictions affected company executives’ decisions
to repay Government assistance, and whether OSM’s framework would elicit lasting change in
compensation practices of the companies that were under OSM’s jurisdiction, and have since exited
TARP.
SIGTARP conducted this evaluation in accordance with the “Quality Standards for
Inspection and Evaluation” established by the Council of the Inspectors General on Integrity
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and Efficiency. Those standards require that SIGTARP plan and perform the evaluation to
obtain evidence sufficient to provide a reasonable basis for findings and conclusions based
on the evaluation objectives. SIGTARP believes that the evidence obtained provides a
reasonable basis for the findings and conclusions based on the evaluation objectives.

Limitations on Data
SIGTARP relied upon Treasury to identify and provide email communication or documents related
to the compensation determination process. It is possible that the documentation provided by
Treasury did not reflect a comprehensive response to SIGTARP’s documentation requests,
potentially limiting SIGTARP’s review.

Use of Computer-Processed Data
SIGTARP did not use computer-processed data during this evaluation. SIGTARP obtained data
from determination letters that are available to the public on Treasury’s website.

Internal Controls
To assess internal controls over OSM’s determination process, SIGTARP interviewed OSM staff.
SIGTARP also requested OSM’s policies and procedures and reviewed the documentation to
determine the extent to which policies and procedures existed, and whether internal controls were
reasonable and effective.

Prior Coverage
On August 19, 2009, SIGTARP issued audit report 09-003, “Despite Evolving Rules on Executive
Compensation, SIGTARP Survey Provides Insights on Compliance.” This report addresses the
efforts of TARP recipients to comply with executive compensation restrictions and plans to comply
with subsequently enacted changes in requirements. On October 14, 2009, SIGTARP issued audit
report 10-002, “Extent of Federal Agencies’ Oversight of AIG Compensation Varied, and Important
Challenges Remain.” This report addresses the extent of knowledge and oversight by Federal
Reserve and Treasury officials over AIG compensation programs and, specifically, retention
payments to the AIG Financial Products (“AIGFP”) unit. The report also addresses the extent to
which executive compensation restrictions or preexisting contractual obligations governed AIGFP
retention payments, and the outstanding AIG compensation issues requiring resolution, and
Government actions to address them.

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Appendix B – Principles of Treasury’s June 2009 IFR
Principle
Risk

Taxpayer
Return

Appropriate
Allocation

PerformanceBased
Compensation

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Definition
The compensation structure should avoid incentives to take unnecessary or
excessive risks that could threaten the value of the TARP recipient,
including incentives that reward employees for short-term or temporary
increases in value, performance, or similar measure that may not ultimately
be reflected by an increase in the long-term value of the TARP recipient.
Accordingly, incentive payments or similar rewards should be structured to
be paid over a time horizon that takes into account the risk horizon so that
the payment or reward reflects whether the employee’s performance over
the particular service period has actually contributed to the long-term value
of the TARP recipient.
The compensation structure, and amount payable where applicable,
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.
The compensation structure should appropriately allocate the
components of compensation such as salary, short-term and longterm incentives, as well as the extent to which compensation is
provided in cash, equity, or other types of compensation such as
executive pensions, other benefits, or perquisites, based on the
specific role of the employee and other relevant circumstances,
including the nature and amount of current compensation, deferred
compensation, or other compensation and benefits previously paid
or awarded. The appropriate allocation may be different for
different positions and for different employees, but generally, in the
case of an executive or other senior-level position, a significant
portion of the overall compensation should be long-term
compensation that aligns the interest of the employee with the
interests of shareholders and taxpayers.
An appropriate portion of the compensation should be performance
based over a relevant performance period. Performance-based
compensation should be determined through tailored metrics that
encompass individual performance and/or the performance of the
TARP recipient or a relevant business unit, taking into
consideration specific business objectives. Performance metrics
may relate to employee compliance with relevant corporate policies.
In addition, the likelihood of meeting the performance metrics
should not be so great that the arrangement fails to provide an
adequate incentive for the employee to perform, and performance

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Comparable
Structures
and Payments

Employee
Contribution
to TARP
Recipient
Value

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metrics should be measurable, enforceable, and actually enforced if
not met. The appropriate allocation and the appropriate performance
metrics may be different for different positions and for different
employees, but generally a significant portion of total compensation
should be performance-based compensation, and generally that
portion should be greater for positions that exercise higher levels of
responsibility.
The compensation structure, and amount payable where applicable,
should be consistent with, and not excessive, taking into account
compensation structures, and amounts for persons in similar
positions or roles at similar entities that are similarly situated,
including, as applicable, entities competing in the same markets and
similarly situated entities that are financially distressed or that are
contemplating or undergoing reorganization.
The compensation structure, and amount payable where applicable,
should reflect the current or prospective contributions of an
employee to the value of the TARP recipient, taking into account
multiple factors such as revenue production, specific expertise,
compliance with company policy and regulation (including risk
management), and corporate leadership, as well as the role the
employee may have had with respect to any change in the financial
health or competitive position of the TARP recipient.

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Appendix C – TARP Expenditures to Seven Companies
That Received Exceptional Assistance
TARP EXPENDITURES TO THE SEVEN COMPANIES
Institution

Investment
Program

Expenditure

Description of Initial
Expenditure

$25 billion

Preferred stock with
warrants

Targeted Investment
Program

$20 billion

Preferred stock with
warrants

$25 billion

Preferred stock with
warrants

Targeted Investment
Program

$20 billion

Trust preferred
securities with
warrants

$49.5 billion

Debt obligation with
additional note

Auto Warranty
Commitment
Program

$0.4 billion

Debt obligation with
additional note

$0.3 billion

Debt obligation with
additional note

$12.5 billion

Debt obligation with
additional note,
zero coupon note,
and equity

Auto Warranty
Commitment
Program

$0.3 billion

Debt obligation with
additional note

Auto Suppliers Support
Program

Chrysler

Capital Purchase
Program

Automotive Industry
Financing Program

General Motors

Preferred stock with
warrants

Auto Suppliers Support
Program

Citigroup

$67.8 billion

Automotive Industry
Financing Program

Bank of America

Systemically Significant
Failing Institutions

Capital Purchase
Program

American International Group

$0.1 billion

Debt obligation with
additional note

Ally Financial (formerly GMAC)

Automotive Industry
Financing Program

$17.2 billion

Convertible preferred
stock, preferred
stock, and trust
preferred securities
with exercised
warrants, and debt
obligation

Chrysler Financial

Automotive Industry
Financing Program

$1.5 billion

Debt obligation with
additional note

Source: SIGTARP’s Quarterly Report to Congress, October 27, 2011.

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Appendix D – AIG’s Government Assistance and
Recapitalization Plan To Exit TARP
AIG received Government assistance through Treasury’s Systemically Significant Failing
Institutions Program and from the Federal Reserve Bank of New York (“FRBNY”), as follows:


On November 25, 2008, Treasury made an initial $40 billion investment in AIG with the
purchase of preferred stock and warrants, and on April 17, 2009, Treasury committed to fund an
equity capital facility under which AIG could draw down up to $29.8 billion52 in exchange for
additional preferred stock and additional warrants.



In September 2008, FRBNY extended an $85 billion revolving credit facility to AIG (later
changed to $60 billion) and later lent $43.8 billion to two special purpose vehicles (“SPVs”)53
established to purchase mortgage-backed securities and collateralized debt obligations.



On March 2, 2009, Treasury and the Federal Reserve announced a restructuring of Government
assistance to AIG that was designed to strengthen the company’s capital position. The measures
included an authorization for FRBNY to acquire up to $26 billion of preferred equity interests in
two SPVs formed to hold American International Assurance Co., Ltd. (“AIA”) and American
Life Insurance Company (“ALICO”), two of AIG’s largest foreign life insurance subsidiaries.



On December 1, 2009, FRBNY received $16 billion in preferred equity interests in the AIA SPV
and $9 billion in the ALICO SPV.



On December 8, 2010, AIG announced it signed a Master Transaction Agreement regarding a
series of integrated transactions to recapitalize AIG.



On January 14, 2011, AIG completed the series of integrated transactions contemplated under
the Master Transaction Agreement to recapitalize AIG with FRBNY and Treasury, including the
repayment and termination of FRBNY revolving credit facility, the repurchase and exchange of
the SPV preferred equity interests, and the exchange of the series of preferred stock held by
Treasury for a new series of preferred stock, Series G, with a related $2 billion drawdown right,
and AIG common stock.



On May 27, 2011, AIG and Treasury completed the registered public offering of 100 million and
200 million shares of AIG common stock, respectively, at $29 per share, and the Series G
preferred stock and related drawdown right were canceled. As a result of the offering, the

52
53

$2 billion was canceled for a total of $27.8 billion in expenditures.
FRBNY created Maiden Lane II, an SPV to which FRBNY lent $19.5 billion to fund the purchase of
residential mortgage-backed securities from several AIG subsidiaries. FRBNY created Maiden Lane III, an
SPV to which FRBNY lent $24.3 billion to buy from AIG’s counterparties collateralized debt obligations that
underlie credit default swap contracts written by AIG.

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ownership interest of Treasury was reduced from approximately 92.2% to approximately 76.7%
of AIG common stock.

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Appendix E – Acronyms and Abbreviations
Acronym/Abbreviation

Definition

AIA
AIG
AIGFP
ALICO
Ally
Bank of America
CEO
CFO
Chrysler
Chrysler Financial
Citigroup
COP
Dodd-Frank Act
EESA
FRBNY
GM
IFR
OFS
OSM
Recovery Act
SEOs
SIFIs
SIGTARP

American International Assurance Co., Ltd.
American International Group, Inc.
AIG Financial Products unit
American Life Insurance Company
Ally Financial Inc., formerly GMAC, Inc.
Bank of America Corporation
chief executive officer
chief financial officer
Chrysler Holding LLC
Chrysler Financial Services Americas LLC
Citigroup Inc.
Congressional Oversight Panel
Dodd-Frank Wall Street Reform and Consumer Protection Act
Emergency Economic Stabilization Act of 2008
Federal Reserve Bank of New York
General Motors Corporation
Interim Final Rule
Office of Financial Stability
Office of the Special Master for TARP Executive Compensation
American Recovery and Reinvestment Act of 2009
senior executive officers
systemically important financial institutions
Office of the Special Inspector General for the Troubled Asset Relief
Program
special purpose vehicles
Troubled Asset Relief Program
Targeted Investment Program
University of Southern California

SPV
TARP
TIP
USC

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Appendix F – Evaluation Team Members
This evaluation was conducted and the report was prepared under the direction of Kurt Hyde,
Deputy Inspector General for Audit and Evaluation, and Kimberley A. Caprio, Assistant Deputy
Special Inspector General for Audit and Evaluation, Office of the Special Inspector General for the
Troubled Asset Relief Program.
Staff members who conducted the evaluation and contributed to the report include Craig Meklir,
Clayton W. Boyce, Michelle Mang, Meredith McDaniel, Daniel Ben-Zadok, and Vonda Batts.

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Appendix G – Agency Comments

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SIGTARP Hotline
If you are aware of fraud, waste, abuse, mismanagement, or misrepresentations associated with the
Troubled Asset Relief Program, please contact the SIGTARP Hotline.
By Online Form: www.SIGTARP.gov
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By Phone: Call toll free: (877) SIG-2009

By Fax: (202) 622-4559
By Mail:

Hotline: Office of the Special Inspector General
for the Troubled Asset Relief Program
1801 L Street., NW, 3rd Floor
Washington, D.C. 20220

Press Inquiries
If you have any inquiries, please contact our Press Office:
Troy Gravitt
Acting Director of Communications
Troy.Gravitt@treasury.gov
202-927-8940

Legislative Affairs
For Congressional inquiries, please contact our Legislative Affairs Office:
Joseph Cwiklinski
Director of Legislative Affairs
Joseph.Cwiklinski@treasury.gov
202-927-9159

Obtaining Copies of Testimony and Reports
To obtain copies of testimony and reports, please log on to our website at www.SIGTARP.gov. 
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