12-001 January 23, 2012 

The Special Master’s Determinations 

for Executive Compensation of Companies 

Receiving Exceptional Assistance Under TARP 
Office of the special inspector general 

 For the Troubled Asset Relief Program 

1801 L Street, NW, 4th Floor 

Washington, D.C. 20220 

 

12-001 January 23, 2012 

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). 
The Special Master’s Determinations for Executive Compensation of 

Companies Receiving Exceptional Assistance Under TARP 

12-001 January 23, 2012 

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 

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 
The Special Master’s Determinations for Executive Compensation of 

Companies Receiving Exceptional Assistance Under TARP 

12-001 January 23, 2012 

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 

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 
The Special Master’s Determinations for Executive Compensation of 

Companies Receiving Exceptional Assistance Under TARP 

12-001 January 23, 2012 

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. 
The Special Master’s Determinations for Executive Compensation of 

Companies Receiving Exceptional Assistance Under TARP 

12-001 January 23, 2012 

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
The Special Master’s Determinations for Executive Compensation of 

Companies Receiving Exceptional Assistance Under TARP 

12-001 January 23, 2012 

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

 
The Special Master’s Determinations for Executive Compensation of 

Companies Receiving Exceptional Assistance Under TARP 

12-001 January 23, 2012 

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. 
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

OF COMPANIES RECEIVING EXCEPTIONAL ASSISTANCE UNDER TARP 1

12-001 January 23, 2012 

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.
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

OF COMPANIES RECEIVING EXCEPTIONAL ASSISTANCE UNDER TARP 2

12-001 January 23, 2012 

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. 
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

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12-001 January 23, 2012 

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.
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

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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. 
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

OF COMPANIES RECEIVING EXCEPTIONAL ASSISTANCE UNDER TARP 6

12-001 January 23, 2012 

 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. 
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

OF COMPANIES RECEIVING EXCEPTIONAL ASSISTANCE UNDER TARP 7

12-001 January 23, 2012 

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. 
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

OF COMPANIES RECEIVING EXCEPTIONAL ASSISTANCE UNDER TARP 8

12-001 January 23, 2012 

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 

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. 

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 

Ally 23 24 25 

Total 137 121 98 

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. 
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

OF COMPANIES RECEIVING EXCEPTIONAL ASSISTANCE UNDER TARP 9

12-001 January 23, 2012 

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. 
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

OF COMPANIES RECEIVING EXCEPTIONAL ASSISTANCE UNDER TARP 10

12-001 January 23, 2012 

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. 
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

OF COMPANIES RECEIVING EXCEPTIONAL ASSISTANCE UNDER TARP 11

12-001 January 23, 2012 

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.
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

OF COMPANIES RECEIVING EXCEPTIONAL ASSISTANCE UNDER TARP 12

12-001 January 23, 2012 

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. 

 
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

OF COMPANIES RECEIVING EXCEPTIONAL ASSISTANCE UNDER TARP 13

12-001 January 23, 2012 

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. 
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

OF COMPANIES RECEIVING EXCEPTIONAL ASSISTANCE UNDER TARP 14

12-001 January 23, 2012 

FIGURE 1 

2009-2011 TOTAL DIRECT COMPENSATION APPROVED BY OSM FOR TOP 25 

EMPLOYEES AT EXCEPTIONAL ASSISTANCE TARP COMPANIES 

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, 

21

23

13

13

20

25

22

24

23

25

24

25

25

23

25

25

$0 $20 $40 $60 $80 $100 $120 $140

2009

Citigroup 

Ally Financial 

Bank of America 

AIG 

General Motors 

Chrysler Group 

Chrysler Financial 

2010

Ally Financial 

AIG 

General Motors 

Chrysler Group 

Chrysler Financial 

2011

Ally Financial 

AIG 

General Motors 

Chrysler Group 

Cash Salary

Stock Salary

Long-Term Restricted 

Stock

The # of Top 25 

employees in each firm is 

listed next to the horizontal 

bar.

($, in millions)
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

OF COMPANIES RECEIVING EXCEPTIONAL ASSISTANCE UNDER TARP 15

12-001 January 23, 2012 

$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. 
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

OF COMPANIES RECEIVING EXCEPTIONAL ASSISTANCE UNDER TARP 16

12-001 January 23, 2012 

FIGURE 2 

OSM-APPROVED PAY PACKAGES ANNUALLY BY SIZE 

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. 

69

21

16

30

1

50

43

13

14

1

27

32

20

18

1

0 10 20 30 40 50 60 70

2009 Pay Packages = 137

$0 - <$1m

$1m - <$3m

$3m - <$5m

$5m - <$10m

$10m or more

2010 Pay Packages = 121

$0 - <$1m

$1m - <$3m

$3m - <$5m

$5m - <$10m

$10m or more

2011 Pay Packages = 98

$0 - <$1m

$1m - <$3m

$3m - <$5m

$5m - <$10m

$10m or more

OSM-Approved Pay Packages for Top 25 Employees 
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

OF COMPANIES RECEIVING EXCEPTIONAL ASSISTANCE UNDER TARP 17

12-001 January 23, 2012 

FIGURE 3 

EMPLOYEES AT EXCEPTIONAL ASSISTANCE TARP RECIPIENTS APPROVED BY THE 

SPECIAL MASTER TO BE PAID CASH SALARIES IN EXCESS OF $500,000 

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. 

1

5 5

2

9

11

4

8

3

6

OSM-Approved Salaries in Excess of $500,000

OSM-Approved Salaries in Excess of $500,000

2009 2010 2011   

AIG Bank of America Citigroup General Motors Ally Chrysler Group Chrysler Financial

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

N/A means that the company exited the exceptional assistance 

program.

N/A N/A

2009 2010       2011    2009 2010       2011   

N/A N/A

2009 2010 2011    2009 2010       2011 2009 2010 2011   

N/A

2009 2010       2011   
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

OF COMPANIES RECEIVING EXCEPTIONAL ASSISTANCE UNDER TARP 18

12-001 January 23, 2012 

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. 
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

OF COMPANIES RECEIVING EXCEPTIONAL ASSISTANCE UNDER TARP 19

12-001 January 23, 2012 

TABLE 2 

PAY PACKAGES APPROVED BY THE SPECIAL MASTER OF CEOS OF TARP RECIPIENTS RECEIVING 

EXCEPTIONAL ASSISTANCE 

 2009 2010 2011 

AIG 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 $10,500,000 $10,500,000 

GM Henderson Whitacreb Akersonb 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 de Molina Carpenterc Carpenterc Carpenter 

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

Chrysler Marchionnea Marchionnea 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 

Chrysler Financial Gilman Gilman d 

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 

 Bank of America Lewis d d 

Cash Salary $0 

Stock Salary 0 

Long-Term Restricted Stock 0 

Total Direct Compensation $0 

Citigroup Pandit d d 

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. 
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

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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%. 24 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. 
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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.
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

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12-001 January 23, 2012 

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 
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

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12-001 January 23, 2012 

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. 

 
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

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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 
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

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12-001 January 23, 2012 

(“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. 
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

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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%. 
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

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12-001 January 23, 2012 

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. 
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

OF COMPANIES RECEIVING EXCEPTIONAL ASSISTANCE UNDER TARP 31

12-001 January 23, 2012 

 TABLE 3 

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.

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 

AIG 

Employees 

Cash 

Salary Stock Salary 

Long-Term 

Restricted 

Stock 

Authorized Cash Retention 

Awards and Other Payments Total[1] 

 1 $3,000,000 $4,000,000 $3,500,000 

Information 

Redacted 

(See note) 

(b)(4)

 2 350,000 100,000 225,000 

 3 125,000 – – 

 4 177,799 – – 

 5 425,000 – – 

 6 125,000 – – 

 7 350,000 3,104,167 833,333 

 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 

Total $6,496,799 $18,720,833 $9,308,333 $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. 
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

OF COMPANIES RECEIVING EXCEPTIONAL ASSISTANCE UNDER TARP 32

12-001 January 23, 2012 

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. 
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

OF COMPANIES RECEIVING EXCEPTIONAL ASSISTANCE UNDER TARP 33

12-001 January 23, 2012 

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. 
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

OF COMPANIES RECEIVING EXCEPTIONAL ASSISTANCE UNDER TARP 34

12-001 January 23, 2012 

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.
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

OF COMPANIES RECEIVING EXCEPTIONAL ASSISTANCE UNDER TARP 35

12-001 January 23, 2012 

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 

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

$0

$10

$20

$30

$40

$50

$60

Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11

BofA

Citi

AIG
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

OF COMPANIES RECEIVING EXCEPTIONAL ASSISTANCE UNDER TARP 36

12-001 January 23, 2012 

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. 

 
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

OF COMPANIES RECEIVING EXCEPTIONAL ASSISTANCE UNDER TARP 37

12-001 January 23, 2012 

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 
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

OF COMPANIES RECEIVING EXCEPTIONAL ASSISTANCE UNDER TARP 38

12-001 January 23, 2012 

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. 

 
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

OF COMPANIES RECEIVING EXCEPTIONAL ASSISTANCE UNDER TARP 39

12-001 January 23, 2012 

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 

Authorized Cash Retention 

Awards and Other Payments [1] Total [2] 

 1 $3,000,000 $4,000,000 $3,500,000 

Information 

Redacted 

(See note) 

(b)(4)

 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 

Total $13,955,106 $68,113,076 $18,675,000 $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.

 
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

OF COMPANIES RECEIVING EXCEPTIONAL ASSISTANCE UNDER TARP 40

12-001 January 23, 2012 

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. 
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

OF COMPANIES RECEIVING EXCEPTIONAL ASSISTANCE UNDER TARP 41

12-001 January 23, 2012 

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. 
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

OF COMPANIES RECEIVING EXCEPTIONAL ASSISTANCE UNDER TARP 42

12-001 January 23, 2012 

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. 
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

OF COMPANIES RECEIVING EXCEPTIONAL ASSISTANCE UNDER TARP 43

12-001 January 23, 2012 

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 

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. 

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% 

Total 104 16 88 85% 
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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: 

 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. 

 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. 

 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 

“simplified” the management structure. 

 
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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. 49 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.
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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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12-001 January 23, 2012 

$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 
THE SPECIAL MASTER’S DETERMINATIONS FOR EXECUTIVE COMPENSATION 

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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 Definition 

Risk 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. 

Taxpayer 

Return 

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. 

Appropriate 

Allocation 

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. 

PerformanceBased 

Compensation 

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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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. 

Comparable 

Structures 

and Payments 

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. 

Employee 

Contribution 

to TARP 

Recipient 

Value 

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 

American International Group Systemically Significant 

Failing Institutions $67.8 billion Preferred stock with warrants 

Bank of America 

Capital Purchase 

Program $25 billion Preferred stock with warrants 

Targeted Investment 

Program $20 billion Preferred stock with warrants 

Citigroup 

Capital Purchase 

Program $25 billion Preferred stock with warrants 

Targeted Investment 

Program $20 billion 

Trust preferred 

securities with 

warrants 

General Motors 

Automotive Industry 

Financing Program $49.5 billion Debt obligation with additional note 

Auto Warranty 

Commitment 

Program 

$0.4 billion Debt obligation with 

additional note 

Auto Suppliers Support 

Program $0.3 billion Debt obligation with additional note 

Chrysler 

Automotive Industry 

Financing Program $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 $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 $2 billion was canceled for a total of $27.8 billion in expenditures. 

53 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 American International Assurance Co., Ltd. 

AIG American International Group, Inc. 

AIGFP AIG Financial Products unit 

ALICO American Life Insurance Company 

Ally Ally Financial Inc., formerly GMAC, Inc. 

Bank of America Bank of America Corporation 

CEO chief executive officer 

CFO chief financial officer 

Chrysler Chrysler Holding LLC 

Chrysler Financial Chrysler Financial Services Americas LLC 

Citigroup Citigroup Inc. 

COP Congressional Oversight Panel 

Dodd-Frank Act Dodd-Frank Wall Street Reform and Consumer Protection Act 

EESA Emergency Economic Stabilization Act of 2008 

FRBNY Federal Reserve Bank of New York 

GM General Motors Corporation 

IFR Interim Final Rule 

OFS Office of Financial Stability 

OSM Office of the Special Master for TARP Executive Compensation 

Recovery Act American Recovery and Reinvestment Act of 2009 

SEOs senior executive officers 

SIFIs systemically important financial institutions

SIGTARP Office of the Special Inspector General for the Troubled Asset Relief 

Program 

SPV special purpose vehicles 

TARP Troubled Asset Relief Program 

TIP Targeted Investment Program 

USC University of Southern California 

 
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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 UOnline FormU: Uwww.SIGTARP.govU 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 Uwww.SIGTARP.govU.