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AIG Execs Call Pay Czar's Bluff; He Folds

Back in October, Obama administration Pay Czar Kenneth Feinberg announced sweeping and aggressive pay restrictions for firms who received government bailout money. Those restraints were so ambitious that they have resulted in banks hustling to pay back what they owe Uncle Sam. The most notable has been Bank of America, which needs to attract a new CEO. But it turns out that Feinberg's demands might have been a little more negotiable that was initially anticipated: some AIG executives have complained and the pay czar will relax his requirements.

BusinessWeek Bloomberg reports:

Kenneth Feinberg, the U.S. paymaster for rescued companies, will exempt some executives at American International Group Inc. (AIG) from a $500,000 salary cap after at least five employees threatened to quit because of the limits, people familiar with the matter said.

Amusingly, the article quoted above also notes:

Feinberg, the Obama administration's special master for executive compensation, said in October that base salaries at AIG wouldn't exceed $500,000 a year except in cases where there was "good cause" to pay more.

I guess "good cause" is when employees complain that the pay ceilings are too restrictive and threaten to quit. Unless these executives suddenly proved their undeniably high value to AIG, which was unknown before October, I hardly can see what truly "good cause" could suddenly have materialized.

Clearly, there are two schools of thought here. Those sympathetic to the executives plagued with measly $500,000 salaries will be pleased by this development. They believe that AIG's executives are worth paying incredibly large sums of money, even though the government has sunk around $180 billion into the firm.

The other group likely finds this news disturbing. They are incensed that Feinberg would crumble so easily under pressure from a few executives. This group argues that no one at this firm deserves excessive pay as long as it owes the government money, and its executives should leave if that bothers them.

I'm somewhere in between these two schools. I just worry that we'll never get our money back from AIG if all the talent leaves, but I'm also a little doubtful that this supposed talent is as indispensable as it claims to be. Though, I am a little surprised to see Feinberg cave so easily. I would have thought he had better gauged the reactions that his restrictions would produce, and took that into account when setting his rules. It looks pretty bad to make exceptions to the guidelines less than two months after announcing them.