Obama Pay Czar Ken Feinberg Flexes His Muscles at Bailout Firms

Ken Feinberg, the Obama administration's so-called pay czar, is cracking his whip yet again.

According to The Wall Street Journal, Feinberg plans to review compensation practices at 419 firms that took government bailout funds, including Goldman Sachs (GS) and J.P. Morgan Chase (JPM), "to determine if any bonuses, salary or other compensation paid during a short window should be returned, according to government officials." He cannot demand the return of any pay, but he can renegotiate any payments deemed not to be in the public interest, the paper notes.

Goldman and J.P. Morgan had anticipated Feinberg taking action. Last year, New York-based Goldman agreed to pay bonuses to its top 30 executives in restricted stock. CEO Lloyd Blankfein got $9.8 million in compensation. His rival at J.P. Morgan, CEO Jamie Dimon, skipped a cash bonus for the second year in a row in 2009 in favor of restricted stock and options valued at $14.2 million. Dimon's total pay was $15.5 million.

If figuring out how much a hot-shot Wall Street banker deserves to be paid seems almost impossible, it's the type of assignment tailor-made for Feinberg. The lawyer first gained notice for overseeing the distribution of nearly $7 billion in government funds to families of those killed in the 9/11 terrorist attacks. He took on a similar assignment for the families of the victims killed during the shootings at Virginia Tech.

From Pay Czar to Philosopher

In his current assignment, Feinberg's blunt style has won him as many enemies as admirers in the financial world. American International Group Inc. (AIG) Chief Executive Robert Benmosche threatened to quit soon after he took the job last year because he found managing under Feinberg's policies too onerous. He eventually backed down. Wall Street firms have complained that the restrictions make it tougher for them to retain top talent, an argument Feinberg rejects.

Indeed, Feinberg remains unimpressed with the fading glamor of the financial services firms and automakers, and their top executives, whose compensation packages he must approve. He has rightly criticized companies for rewarding short-term progress at the expense of long-term viability. The job also has made him a philosopher.

"As the pay czar, I have learned something very interesting about compensation," Feinberg recently told an audience at the University of Pennsylvania's Wharton School of Business. Many people "look at it as a populist issue ... But it's not that simple. In our society, I've found that compensation is a surrogate for worth."

Sad but true.