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A Conversation with Kenneth Feinberg

Speaker: Kenneth R. Feinberg, Special Master for TARP Executive Compensation
Presider: Richard E. Salomon, Managing Partner, East End Advisors, LLC
Introductory Speaker: Richard N. Haass, President, Council on Foreign Relations
March 4, 2010, New York
Council on Foreign Relations

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MR. HAASS: Okay. Let me begin by welcoming everyone to the Council on Foreign Relations and to our 2010 Corporate Conference. And this is -- as I expect many of you know, is the cornerstone of the corporate programs year here at the council, and it's the sixth year in a row that we've done this. And we're happy that a majority of our about 200 member companies are represented at this conference. We especially appreciate those of you who have traveled farther than the West Side.

We'd like to recognize those companies at the founders level. That includes Bank of America, Merrill Lynch, Exxon Mobil, Goldman Sachs, the Hess Corporation, McKinsey and Nasdaq OMX. We've also got some of our board members here, and some members of our Committee on Corporate Affairs.

And we hope that for all of you the Council on Foreign Relations continues to be a resource -- whether online, in reading, through our -- through our fellows, what have you. And the more that this relationship can develop, I actually think it's good for both sides of it, for the council and for yourselves and for your corporations.

Now, I expect, by the fact that you are here, it means that you know something about us, and probably know a lot about us. But what we have done to increase awareness of the council and to make people understand what kind of a resource we are -- our independence, our nonpartisan roots -- what we've done is created a very short video. I promise you it's short; it's approximately 240 seconds. It's not up for an academy award, so you'll not see it Sunday night, but it's actually going to debut here at this moment. And it will take all of four minutes, and then we will essentially get the event under way. And I promised both Mr. Salomon and Mr. Feinberg that this will not subtract from their time. That was the deal I had to make in order to show it.

So if we could show it for -- right now -- that would be great. And then we can get under way.

(Video shown.) (Applause.)

MR. HAASS : As it turns out, several of the people in that, including Fareed Zakaria and Bob Rubin, will be here in person tomorrow. And this is in part to get out in what I am told is called social media -- I want to impress all of you with how hip I now am -- but to get it out there, because it's important that the foreign-policy debate and the debate about this country's relationship with the world go beyond people such as yourselves, who are already such a part of it.

And what we are trying to do is produce something that actually, in addition to foreign affairs, in addition to the books, that actually goes out in places like YouTube and Twitter and the rest, because that's where, for better and for worse, the foreign policy and international debate is happening.

We're doing lots of other things, trying to reach not just the business community, not just political leaders, not just intellectual leaders, but also religious leaders -- the people who give sermons on Fridays, Saturdays and Sunday mornings -- state and local officials and so forth. We're trying to tackle the urgent. We are trying to tackle the important.

We're doing it here in New York. We're also -- increasingly do it out of Washington, out of our new building there about two blocks from the -- from the White House. And we do it, obviously, across the board. But in particular, for today and tomorrow -- (clears throat) -- I get emotional when I talk about this -- with the -- with the help of our corporate team.

You all know Camille Massey, we've also got Lawrence Wright, the newest member of the team, and Aimee Carter in Washington. And you'll have the chance to meet them tonight afterwards, and again over the next day or so.

With that, let me turn things over to kick off the -- what I think will really be an extraordinary 24 hours tonight and all day tomorrow, ending up with David Rubenstein at the end of tomorrow.

But we're starting things off with Rick Salomon, who is the vice chair of the Council on Foreign Relations. So, Rick, Ken, up here, please.

RICHARD E. SALOMON: Thank you, Richard.

Let me make just a couple of quick announcements, the usual ones. Turn off the cell phones, not just vibrate. This session is on the record, as opposed to many of the council's sessions. So be aware of that.

I'd like to reiterate Richard's welcome, and especially his thanks to the people in this room. The council is in terrific shape. We've come through two difficult years, difficult economic environment. And the council's program and financial condition is really superb. And it's that financial condition that we are most grateful to you all for having supported through what has been a very difficult time. Your companies have really made the difference in what program we've been able to provide.

I want to very briefly introduce our guest, who is going to be the keynote speaker at the first session of the conference. We are very lucky to have with us Mr. Kenneth Feinberg, who was appointed by the secretary of the Treasury as special master for executive compensation for the United States. I must say, until he was appointed to that position, I didn't know that we as a country had special masters. It sort of sounded to me like someone who might preside at a Japanese tea ceremony or maybe a martial arts contest of one kind or another. But I suspect we'll learn during the course of the next hour what it is that a special master does.

Mr. Feinberg's CV is in your material, and I'm only going to touch on a few of the highlights that you can read in more detail there. He is a very distinguished lawyer, educator and lecturer with wide-ranging accomplishments in each of those areas.

In addition to his special master function, which is the topic of the day, one of the things that I thought was particularly notable in his -- in his CV is the fact that as one of the leading experts in this country on mediation and alternative dispute settlement, he has been entrusted with some remarkably sensitive issues to reside over. Those include the federal September 11th Victim Compensation Fund, the shootings at Virginia Tech, Hurricane Katrina, the original Zapruder film of the Kennedy assassination, the Holocaust slave labor litigation, and human radiation experiments and catastrophic nuclear accidents. It's quite a roster of responsibilities that you have been entrusted with and presided over.

In addition to these professional associations, he -- Mr. Feinberg has a wide range of nonprofit interests, currently serving as the president of the Washington National Opera, chairman elect of the RAND Institute of (sic) Civil Justice and vice chairman of the board of Human Rights First. We are very lucky to have a person of this distinction to talk with us on a topic that I suspect will be of interest to most of you in this room.

So Mr. Feinberg. (Applause.)

KENNETH R. FEINBERG: I want to thank Richard for those comments. Special master: Special master is not known much to the public, but special master is a common term these days in the law: somebody who's appointed by a judge or by an attorney general or a secretary of the Treasury to administer a program.

And when I told my wife about -- this was years ago, with the 9/11 fund -- I came home one day and said to my wife, I said, "I'm going to be the special master." (Soft laughter.) And my wife said, "You know, that's all right. Good luck. But if anybody calls me the special mistress, I'm going to be annoyed." (Laughter.) And it worked out fine, so -- (soft laughter).

I want to thank Richard and I want to thank the council. This is a great honor indeed for me to be asked to address you here tonight. I'm under a lot of pressure. My son is in the audience. That's not easy, but we'll do our best.

And I'm told by Richard that I should just spend seven, 10 minutes at the most giving a little bit of background on what I'm doing and then open it up to Richard and questions and what have you. So that sounds like a fair approach to take for this evening.

Now, everybody should understand how limited my role is when it comes to determining executive compensation. I act pursuant to a federal law enacted by Congress that simply states, in the law, any public company that received exceptional financial assistance from the taxpayer -- as defined, seven companies -- that's all, seven -- is subject to have its senior executive compensation determined by a Treasury official.

Now, for those seven companies, I have mandatory jurisdiction to calculate pay over just the top 25 people in each of those companies. That's it. That's it.

Under the law, I also have the responsibility to design and administer compensation structures for those seven companies for officials 26 to a hundred. That's it.

My third discretionary function -- so far not exercised -- in my discretion: to seek to claw back compensation that's already been paid and spent by any corporate official in a company that received TARP assistance.

Now, that is what the statute says, and that's all that the statute says. So I am perplexed at times as to why there is such interest in what I'm doing -- (laughter) -- for such a small number of people. It really is a fraction. It's a sideshow, says The New York Times editorial page, with some affection.

And I think -- I think the reason that there is such interest -- way beyond what I would have anticipated -- two reasons: One, in a time of such economic uncertainty, financial uncertainty, high unemployment, the American people are extremely interested and angered by executive pay. So what we see is sort of a populist interest in my work.

And the second reason there's such interest, I suspect, is although everybody talks about executive compensation prescriptions and terms and conditions, I'm the only government official that actually has to take the prescriptions and calculate the pay, the dollar sign. You will make X, you will make Y. And I think people are very interested in how I reach those judgments and what those judgments are that are articulated in the bottom-line dollars. So I think those are the reasons.

Now, the final point I want to make before I turn it over to our moderator: I would have thought at the outset of my work that there would have been a certain criticism addressed to me and the statute: It's none of the government's business what private sector pay looks like; it's a bad idea, and government should stay out of the private marketplace when it comes to compensation.

I have heard very, very little of that -- very little. And I think the reason that there's sort of a bipartisan concession to what I'm doing is that, A, as already indicated, it's only these seven companies -- now, originally seven companies -- and B, the taxpayer owns the companies. It's the taxpayer acting through a surrogate, the special master, acting as a creditor for these seven companies.

So whether you're from a red state, a blue state, Republican, Democrat, conservative, liberal, whatever, it seems to be that the general reaction is, as long as it's limited to these companies, and as long as the argument is based on the fact that the taxpayer owns these companies, and the taxpayer is acting as a creditor for these companies who only survived because of government taxpayer largess, why not set the compensation? And that's sort of the reaction I've received to date.

Now, there's a lot of criticism at what I'm doing, but it's not a philosophic aversion to the notion of government regulating pay. So that is sort of an overview.

Now, remember one final point. We started out under the statute with seven companies, but the statute makes very clear: Once a company repays its entire obligation to the taxpayer, it's out from under my jurisdiction. So there were seven. Citigroup and Bank of America raced to get out from under my jurisdiction and are no longer subject, in 2010, to my jurisdiction or to compensation setting. They have -- under the law, they are gone. And congratulations to them for repaying the taxpayer.

That leaves me with five companies, and my determinations will be made in the next few week: GM, GMAC, Chrysler, Chrysler Financial and AIG. Those are the five companies. As long as they owe the taxpayer money, there will be a special master responsible for setting pay in this limited area. So there's sort of a context of which we go from, from there.

My leader. (Pause.)

SALOMON: Thank you, Ken. What we're going to do is have a little discourse back and forth. I'm going to ask a couple of questions, but I want to reserve most of the time for your questions. I'm sure there will be many.

So Ken, let me just start. Thank you for your comments. The first question I'd like to ask really tries to get at the question of the interplay between compensation and risk management.

This is something I've wrestled with personally, because I'm the chairman of a compensation committee of a major publicly traded company. And we have for a long time wrestled with this question. How can we use compensation to make sure that risk is well managed?

And we've tried a lot of things. We've worked on long-term incentive packages for our executives, to discourage short-term risk taking. We have vesting schedules, so there is always a substantial amount of compensation that is unvested at any point in time.

We've had significant shareholder -- share ownership requirements. And we've tried to be also sort of nonformulaic about it. In other words, to avoid the situation where our goals for an executive say, you do this, you get that, so that we can reserve some more subjective evaluation in setting compensation awards as well.

But I'd be curious to know from your standpoint. What aspects of compensation packages do you think can be used effectively to prudently manage risk?

FEINBERG: One, low cash-based salaries. That's a guarantee. You've got to be paid every -- twice a month. Low -- this is what we have concluded. Low cash-based salaries, no guaranteed income other than cash-based salaries for any reason.

The remainder of your salary in salarized stock but stock that cannot be redeemed or transferred except a third after two years, a third after three years and a third after four years.

Additional stock which will vest after three years but can't be transferred for five years, and which stock is only redeemable if the company repays the taxpayer a portion, 25 percent.

That is the basic salarized prescription. Then we say, if you want additional compensation, so-called bonus compensation, if you are in the top 25, by law it cannot be cash. Don't ask me why. Congress has spoken. It has to be in stock.

And if you're in the 26 to 100, it can be cash. But if it's cash, half of it is redeemed or paid within one year; the other half in two years. And whether or not you get that extra compensation, as Richard implies, is based on prospective performance criteria, to be established by the company itself.

One size does not fit all. But those performance criteria must be passed on by the special master's office. That in a summary is a compensation program designed to minimize the likelihood, under the statute, of excessive risk-taking.

People ask me all the time, what is excessive risk? My answer, I know it when I see it. (Laughter.) There's no other way I can say it. There's no definition of excessive risk taking that I've found. It's more on a case-by-case basis.

SALOMON: Well, let me try another sort of variant on that, on that same theme. I was interested to read recently one of the Squam Lake papers, the most recent one, which was about financial reform. For those of you who don't know, the Squam Lake Working Group consists of 13 nonpartisan academics who sort of come together to offer guidance on the reform of financial regulation. The council and its geoeconomic center is publishing those papers. And it's a very interesting group of papers. The most recent one was about compensation.

And it's an interesting paper, in the sense that it comes to a conclusion that first of all, the government should really not worry about the level of compensation, but that it should be focusing on the design of compensation and that it should do so in one very simple way; that a slice of compensation should be held back for five years, and that that compensation should not be stock or stock options but cash, the reason being if it's stock or stock options, you have an executive who is inclined to think like a stockholder.

If what is being held back is cash, he's going to think more like a creditor or a bondholder and maybe be a little bit more cautious. That's their recommendation. I'm curious to know what you think of the idea.

FEINBERG: First of all, the notion that we shouldn't worry about the amount of pay is politically unrealistic. I mean, you talk about stoking populist unrest. In my experience, the prescriptions that I'm applying are of less interest to the public than the amount of compensation, at the end of the day, that is being received by corporate officials.

I've heard the argument about -- first of all, under the law, these seven companies', now five companies', stock options are out, prohibited by statute. So it's not an options -- by law, there are no options.

SALOMON: But just more generally companies --

FEINBERG: But generally I've heard two arguments.

I've heard some say as this paper says that tying compensation to future equity encourages risk taking, as you seek to enhance the value of that equity. I've heard that argument.

Then I hear the argument on the other side which is, nothing promotes excessive risk more than a guaranteed upfront cash payment and that if you want to avoid excessive risk, tie the individual's own compensation to the future of the company itself.

Maybe there's an in between or a compromise or there's some way to gild that lily. I'm all ears on that. I don't think there's an argument we haven't heard, about the best way to minimize risk and maximize financial stability of the company and the shareholders.

Now, the other thing is, remember, just in passing, I really -- my mandate has nothing really to do with the entirely separate subject of corporate governance: shareholder rights, independent compensation committees, independent compensation consultants.

If there is one, I haven't found one yet. (Laughter.) So corporate governance is one of a list of items on the administration's menu which is separate and distinct. Congress is considering it now. Many say that's where the real reform is needed, in terms of how companies set pay and what the shareholders' rights are and what the transparency should be. And that I leave for others.

SALOMON: Okay, let me now turn to the audience and see if we can answer your questions. And then I'd like to ask one question at the end. So questions, and wait until you get a microphone. And please identify yourself before you ask your question.

Byron.

QUESTIONER: Byron Wien, the Blackstone Group.

One of the things that I've noticed is that the public has somehow gotten the perception that if compensation for executives is diminished, the public is a direct beneficiary.

So I think that's wrong. And I think that the best way that the government and the public would benefit is if you maximized cash compensation on a near-term basis and taxed the hell out of it -- 40 percent is sort of the hell out of it.

So if the Bush tax preferences are eliminated, the tax rate will go up to 39.6. So if Lloyd Blankfein makes his $53 million, you know, there's going to be 26 (million dollars) or $25 million that's going to accrue to the federal government.

But somehow the public has the opposite idea. The public has the idea that if you diminish Lloyd's compensation, they will be direct beneficiaries. And they won't be.

They will only benefit over a very long period of time, over the compensation program you said, because it will be stock. And you have to wait for it to appreciate, and the capital gains -- to be sold, and the capital gains to accrue to the government.

FEINBERG: I have two responses to that.

First, I haven't heard much of an argument made by the public that if executive compensation is reduced, it will inure to their benefit. I've heard the argument that if executive compensation is reduced, it's fairer and more just in uncertain economic times. But I haven't heard the argument that somehow that will inure to their benefit, other than a sense of satisfaction as to what's just in a free society.

The other point I would make is, in terms of imposing penalties on the size of compensation -- (Stewie ?), spoken like a member of the Obama administration, which has proposed, as one of the recipes of changes in executive comp, a bank fee proposal that would impose -- I'm not an expert on it, but I read The Wall Street Journal -- that would impose a fee on certain transactions or certain compensation above a certain level. Parliament did it in London, as you know, and I leave to others how successful it's been. But again, in terms of public dissatisfaction with the size of pay, one solution is sort of an approach that above a certain level, there's money coming back to the coffers of the U.S. Treasury.

SALOMON: Yes, sir.

QUESTIONER: Rik Kirkland, McKinsey. You have an interesting mix of both financial and nonfinancial companies in your remit, and there's been a lot of discussion since the financial crisis about the unique role that financial firms have in our economy and that -- and in the way risk can leverage to the system.

Not looking at your narrow remit, but just philosophically, do you think there's a -- do you think of these two differently in terms of the compensation issues and the risk issues and how you should structure them?

FEINBERG: Very different. First of all, politically they're very different. There's much more interest, exponentially more interest, in financial firms, than in the auto industry. One reason is, last year, if you look at the top three or four people at Citigroup or Bank of America, and the top 25, those three or four people made more money than all 25 of the auto industry executives. So I mean, there's just -- the size, politically, results in an imbalance in terms of interest.

I do think that one size does not fit all and that, for example, it's all well and good to say, as I did in response to Richard, low base cash salaries -- well, if you're at Goldman or if you're at Bank of America or Citigroup or a financial institution, chances are that you can get away with that.

If you go to the auto industry and you say very low base cash salaries, based on the structure that they're presenting to you, you've got to be careful here about liquidity. I mean, people still have to pay for their home and send their kids to school. So you just can't assume that the prescription, as applied to each company, can be applied exactly the same.

There is much more interest, much more -- political interest -- in what we do with financial institutions, Wall Street, than with Detroit or Chrysler Financial, which, after all, has no stock and is in runoff.

So if you look at the -- what we've come up with for Chrysler Financial, it's all -- it's all cash. There isn't even any stock to be had.

So I mean, those are some of the issues I'm just trying to get at -- that you have to look at these things much differently and they don't -- they don't all appear to be the same when you apply the prescriptions.

SALOMON: Yes, ma'am.

QUESTIONER: Alice Young, chair of the Asia practice at Kaye Scholer law firm. I have often heard that it's -- particularly if you talk about the financial institutions, that the best and the brightest, the people who have made the most money for the financial institutions, will leave. They will go elsewhere, AIG certainly being one which is often talked about. Have you in this process found that to be the case or not to be the case?

FEINBERG: I'm very dubious about that argument. I see no empirical evidence of that.

Now I'm told all the time, "Ken, please, take care of this person. She is irreplaceable." The graveyards are filled with irreplaceable people. (Laughter.) I mean, I'm -- I wonder about that.

Now I must say the statute mentions that one factor that I am obligated to consider -- it says so right in the statute -- make sure, when you compensate, that you compensate competitively; that you compensate in a way that will result in these firms thriving financially, so that they will repay the taxpayer. So I'm obligated to take that into account.

I'm dubious about the argument only because I don't see it. Now remember, I'm only dealing with a few companies. Maybe I'm naive. It may be too early. Remember, I've only been issuing determinations since last October, and I may yet, you know, reap the whirlwind here. But empirically I don't see it, and I wonder about it, although I hear it all the time. I hear it all the time. I hear it from Wall Street, and I also hear the counterargument from Congressman Barney Frank.

So it's a factor. I listen. We receive a tremendous amount of data in comparing -- "Mr. Feinberg, we need $2 million for this person. Here's our data showing that this person's job is worth, in the competitive marketplace, $2 million. And by the way, you're fixing our salary, but our competitors aren't under your thumb. They can do what they want. So you better be generous here, because we're competing; this is the world we're competing in." So it's an interesting argument.

The other interesting thing is, when the companies say, "We're going to lose somebody," I say, "Where are they going?" "China!" Everybody's going to China. (Laughter.) Or everybody's going to a foreign company. (Laughter.) And again, it's the give-and-take of that discussion to try and come up with a sensible package.

SALOMON: Another question. Yes, in the back.

QUESTIONER: Hi. M. Patel (sp). I'm with Fox Business Network. I have two questions, actually. Do you think that Vikram Pandit deserves a bonus this year? And do you think that Lloyd Blankfall -- Blankfein didn't get -- was influenced by you this year, even though his firm is no longer under TARP, for his bonus?

FEINBERG: I don't speak for Citigroup. They have to decide for themselves. They're not under my ambit. And you'll have to ask Citigroup that question.

Mr. Blankfein I met with a number of times. He clearly made some effort to tie his compensation both in terms of conditions -- no cash, stock that doesn't vest and is not redeemed for five years -- he tried, clearly made an effort, and said so publicly, to comply with some of the prescriptions that are part of the packages that I've determined.

So the answer to that second question is clearly he did, and we were very pleased at Treasury to see that he did.

SALOMON: I wanted to ask you a related question on that. Do you think -- you've described the repayment of TARP by Citi and Bank of America as being done in a hurry, and one can see the reasons why. But might there not be unintended consequences from their having done that? In their efforts to repay TARP, they use money which could have been useful in shoring up their balance sheets.

Both of those firms have very substantial non-performing loans that they've got to deal with. We sort of extended maturities a lot and kicked the can down the road. But there's a lot to still be dealt with, and might we not rue the day when this repayment was made at a time when those companies would have needed that incremental capital themselves?

FEINBERG: A great question. Ask that question of the Federal Reserve and the Office of Financial Stability at Treasury that reviewed the repayment terms and decided that it was in the interest of the taxpayer and in the interest of the economy for those two firms to make those repayments. There were no unintended consequences on my watch. My watch, under the statute, is to get the taxpayers their money back. And that was a great success, in my parochial view, in interpreting the statute.

Now whether or not the Federal Reserve or other agencies of government should have been more stringent, strict, in allowing that repayment, you'll have to ask them that.

SALOMON: Sir.

QUESTIONER: Thank you. I'm Jon Weber from Goldman Sachs. Apart from your ambit, and certainly apart from Wall Street, I'm just curious if your experience has taught you or suggested policy changes or prescriptions to make executive compensation in the United States better, broadly, if you have any thoughts about what you might change or suggest that policymakers change.

FEINBERG: Be careful about that. I mean, I have publicly said, and I think the secretary of the Treasury, Secretary Geithner, said, in terms of government mandating policy changes, bad idea. This is -- the government as creditor with these companies, that's one thing. Leave it alone. Don't expand my jurisdiction; don't broaden my responsibilities.

I would like to see more voluntary compliance with the notion of no guaranteed income other than base salaries; more stock, less cash; longer-term vesting and redeemability requirements.

But you know, I must say, I mean, I think that's good. I also think it's rather vanilla. I don't talk to many companies that disagree in their entirety with that -- with those prescriptions. It's -- the devil's in the details. And I leave to others in the private sector the extent to which -- as Richard points out -- the extent to which their own parochial culture, their own parochial concerns justify sort of modulating or calibrating those prescriptions in other directions. I'm the first to say that that probably makes sense.

One thing I've learned about all of this: Compensation is not simply about material gain or greed. There may be some of that. But what I've found is that compensation is, to most people, about self-worth. And you got to be careful in just making a superficial assumption that it's all about another car and another house and private schools and all of that. There -- I'm not saying there isn't some of that, but I must say it gets very emotional with many people.

When you discuss compensation -- and compensation is a relative concept involving self-worth, reflection on one's own role as an individual in the company and the economy, in the society. And if you take a too-narrow view of this and you don't listen to the argument about relative worth tied to my next-door neighbor's compensation, or the guy or the woman in the next office, you're doing an injustice, I think, to that individual and the company, as well as to your mandate. Because it's not just about "I want to make more money." It's much more complicated than that, I think.

SALOMON: Other questions? In the back. Yes, sir.

QUESTIONER: Peter Osnos, PublicAffairs Books. Ken, you've had a great deal of experience in high-profile issues of a broad range -- Agent Orange, 9/11. Can you tell us a bit about the impact some of those emotionally enormously engaging cases that you've had -- particularly 9/11, which -- what is it, 96 percent, in the end, of the families --

FEINBERG: You're my publisher. You know exactly what the percentage --

QUESTIONER: Well, I was about to -- yes, I was going to get into that shortly, but --

FEINBERG: (Chuckles.)

QUESTIONER: The -- what really is interesting to me is how the experience that you had in that extraordinary circumstance -- in which, as I recall, you got half a page of instructions from Congress -- how that has affected what your last answer just dealt with, which is that this is, in fact, not an empirical matter, but there are all kinds of other issues that need to be considered when you're making the final judgments.

FEINBERG: Well, that -- you know, you've answered your own question. I mean, 9/11 was like nothing else I've ever done or will ever do. Nine-eleven involved a taxpayer fund that was set up by Congress, tax-free compensation, to any victim or any victim's family that wanted to opt out of the tort system, not sue the airlines, not sue the World Trade Center, and instead take a very generous -- on average, for death, $2 million tax-free -- a very generous compensation.

Virginia Tech: Again, establishing a fund for the families of 32 students and faculty killed by a deranged gunman in Lynchburg, Virginia. I mean, talk about sending a kid to school where you think you're out of harm's way.

So those funds are a -- had a much bigger or a much more difficult impact on me than the current assignment, which is still an emotional assignment, but everything's relative. I mean, those cases were -- I would have -- I have a law degree; I would have been better off with a divinity degree in some of those cases.

It can't help but have an effect on you. You become much more fatalistic about the serendipitous nature of life. Sooner or later, a curveball gets thrown at everybody, I guess. But those people really suffered. And you can't help but become more empathetic.

SALOMON: Other questions? In the very back, yes.

QUESTIONER: Nikolaj Gammeltoft from Bloomberg News. You're about to rule on the five remaining companies. How would you characterize the rulings that we will see, compared to last year's rulings? And out of the 125 executives that you'll be ruling on, how many will be making more money this year than last year?

FEINBERG: Well, those are very good questions that you ought to ask me next week. (Laughter.) I mean, we haven't -- we haven't -- we haven't finalized our 125 determinations. I note that a couple of people have already -- they're already -- have been announced. The CEO of GMAC is taking zero cash in 2010. All of his compensation, about $9 million, is going to be in stock over a three-, four-, five-year period.

So it's premature. I suspect -- don't forget, last year we slashed -- under the prescriptions that we've talked about tonight, we slashed cash by about 90 percent among the seven companies, and overall compensation was cut by about 50 percent. I doubt that we'll do the same thing again, but I think we'll see some further reductions, or very single-digit small increases. But again, nothing's been finalized, and we'll make those determinations, I suspect, for one to 25 in the next week or so, and 26 to 100 in the next month or so.

SALOMON: Dr. Haass.

QUESTIONER: Just one thing you said that surprised me, which was the fact that people hadn't raised the philosophical argument with you. Because I'm sitting here and I'm thinking that's the most important one. And you -- you've several times said that you operate within a -- within the ambit of the statute. But are you comfortable with that ambit? Companies that pay back -- got federal help, they then pay it back, and then they're free -- is that fair? One could argue that they weathered the storm because of taxpayer support; why should they then be free to act then without discipline?

And then let me take the argument farther. Every corporation in the United States benefits from all sorts of support from the federal government, whether it's from the U.S. Army and the Air Force or from the Department of Homeland Security or from what you're not taxed about or various subsidies or what have you. So don't -- is there not an argument that you essentially are setting a precedent, which is truly dangerous, for free-market society? To what extent, in a sense, would you wish you could change the ambit under which you're -- you've chosen or -- you selected to operate?

FEINBERG: Two answers. Very good question, obviously. (Laughter.) Our host.

Two answers. First, Richard, ask Congress. Really. I mean, Congress decided, not me, that government intervention in the private world of compensation is appropriate. So is Congress engaged in risky public policy in carving out the limited jurisdiction that it provided me?

Second, the reason I think you've got to be careful about the precedent or about claiming that it's dangerous is that Congress made it clear, in carving out the jurisdiction, that the reason it's carving out the jurisdiction is because, although there are -- there are hundreds of companies that received TARP assistance, seven are really owned by the taxpayer. Everything's relative. AIG is owned 80 percent by the federal government.

And I think what Congress was suggesting is, one, if there's that much dependence on the federal government, the government has every right to intervene.

Two, there is virtually no interest -- certainly not in the administration; Secretary Geithner has repeatedly stated we have no interest in expanding the role of the special master. It is a one-off, limited to this.

Is it -- is it an unfortunate precedent? Maybe. But of course what happened two years ago or a year and a half ago is an unfortunate precedent. And I think one can make the argument Congress's response in light of the unprecedented nature of the -- of the crisis was appropriate. You won't get much argument from anybody let's expand the special master's jurisdiction. Nobody wants it.

SALOMON: Let me try and take that a little bit different direction, because I think, if I understand Richard's question, I think he -- we understand the limited role, and you made that clear in your initial remarks, as well. But I think the question is whether we're missing an opportunity, quite apart from what your defined role is.

And I remember being in this room -- it must have been six or seven years ago -- and talking with Bill McDonough, who was just leaving as the head of the New York Fed and was my predecessor as the vice chairman of the council. And he said at that point in time, listen, the next hot-button issue is going to be executive compensation. This was six or seven years ago. And I think, wow, I wonder where he comes up with that.

And he gave me some statistics, which have only gotten worse. The CEO compensation relative to the average worker in a company has gone from 24-to-one, which it was 20 years ago, to 275-to-one today. So in many of these companies, the CEO makes in a day what his average worker makes in a year. Now, that is an extreme imbalance, which we need to think about, it seems to me.

And then let me read you a quote. This is from Warren Buffet's letter, and he's referring to the financial sector CEOs. Quote: "Their fortunes may have been diminished by the disasters they oversaw, but they still live in grand style. It is the behavior of these CEOs and directors that needs to be changed. If their institutions and the country are harmed by their recklessness, they should pay a heavy price, one not reimbursable by companies they've damaged or by insurance," end quote.

So it seems to me that you have an opportunity to create a legacy that could endure after your office closes down. But if we keep thinking about the limited role -- and maybe it's not yours to articulate, but there does seem to be, given the hot-button issue, this issue today, an opportunity to create a context for executive compensation that we're going to miss.

FEINBERG: Let me answer that, if everybody has a pencil and a piece of paper. I will now list for you in one minute a series of policy prescriptions pending in Washington designed to take advantage of Richard's point -- a lost opportunity -- without expanding my jurisdiction over a small number of companies with a very limited number of individuals. All pending in Washington. If you want to talk about a broad-based attack on excessive compensation, how about this list?

One, corporate governance reform, pending in Congress. Two, regulatory reform, pending in Congress. Three, prescriptions on pay for financial institutions being promulgated by the Federal Reserve for all financial institutions within its ambit.

Four, prescriptions on large transactions by banks which will trigger executive comp restrictions imposed by Sheila Bair and the FDIC. Five, prescriptions being proposed by the Securities and Exchange Commission that would require more sunlight, more transparency as to how executive boardroom compensation decisions are made.

Six, the G-20 principles being promoted by Secretary Geithner and the G-20 to make sure that what America is doing with executive compensation as to domestic companies does not place those companies at a competitive disadvantage because the G-20 principles are being enforced or are urged to be enforced in G-20 countries as well.

You can go down -- seven, my goodness, seven and eight, the Volcker proposal talking about whether or not banks should be separated from investment, et cetera, Mr. Volcker's suggestion that there ought to be some sort of divestiture so that no bank and no financial institution is too big to fail. And finally, the Obama administration's bank fee proposal that says that if certain banking transactions are excessive or certain compensation is excessive, there should be a fee imposed on that institution.

Now, I can list all of those initiatives and say in response to Richard, and Richard -- (laughter) -- you don't have to expand my jurisdiction in calculating with an adding machine what each person should get, while at the same time ignoring your very good question, shouldn't we take advantage of the situation today to try and deal with the growing gap between executive pay and line worker pay?

And if you look at all of these prescriptions, all of the recipe menu that I've offered, and pick and choose what you want, I suspect that you'll be taking advantage -- just what you've asked for -- you'd be taking advantage of an opportunity to deal with excessive pay, its impact on the workforce, the contrast between boardroom and assembly line, the contrast between American pay and foreign pay, and I think you can really do something here.

The question is, how many of those prescriptions, how much of that recipe will people in this room go, "Yeah"; or will people in this room say, "Yes," "No," "No," "Bad idea," "Maybe," "Maybe"?

The opportunity is here, and I think the administration's trying to move it along with that recipe.

SALOMON: I think we have time for one more question. So -- two brief questions. Okay, yes, sir.

QUESTIONER: My name is Bernard Sucher, Bank of America. You've -- we're talking about the value of a person's work, and in your life you've had to place a value on a person's lost life. And I'm very curious about what mechanisms you use to calibrate your sense of reasonableness about such important things.

FEINBERG: That is a fabulous question. Now, in the 9/11 fund, we had a formula. It's a formula that you all know about. It's a formula that every judge and jury in this country, in every city, village and hamlet, uses: The person who died, what is the economic loss suffered by the survivors as a result of the death -- the premature death of that individual? That guarantees that the banker, the stockbroker, the bond trader is going to get more out of the 9/11 fund than the soldier, the cop, the fireman, the waiter, the busboy. It's guaranteed. And that's what the law required me to do, give everybody a different amount of money.

With the current TARP executive comp, the law says I will gather together all of the empirical data, all of the comparative data about compensation, from the companies, from my own independent sources, compare apples to apples, then listen to the anecdotal evidence about irreplaceability offered by companies, then exercise my discretion as best I can in trying to come up with compensation packages designed to avoid excessive risk.

Am I the only person qualified to do that? Absolutely not. I could give everybody in this room a 9/11 case, including Peter Arsenault's, a 9/11 case or an executive compensation submission, and I bet you we'd get 200 different variations. I can only do the best that I can do under the law and the discretion that's been delegated to me. I try and do it fairly and appropriately.

So those are two examples.

SALOMON: Last last question.

QUESTIONER: Charlie Gasparino, Fox Business. It sounds like, based on your prior statements, you actually hate the free market. You seem to be someone who likes to tinker with executive pay and think it's better to tinker with it. What say you?

FEINBERG: A provocative way to end the questioning. (Laughter.)

I am a big believer in the free market. What I've tried to point out is three things -- are three things, with my love of the free market. One, Congress has spoken. Do not underestimate the obligation I have to follow a law duly enacted by Congress. Your question is better directed to Congress. That's first.

QUESTIONER: I'm not asking you about Congress. I'm talking about -- (off mike).

FEINBERG: All right, but --

QUESTIONER: (Off mike.)

FEINBERG: I start with the fact that --

QUESTIONER: (Off mike.)

FEINBERG: I start with the -- three points. One, I start with the delegation from Congress to enforce the law as Congress wrote it.

Two, two, I am categorically repeating to you and others I do not believe that my congressional delegation should be expanded. I do not want to tinker with the free market. I'm doing only what Congress asked me to do and what the Treasury regulations compel me to do. And I am not looking to -- to politicize this or urge that my jurisdiction be expanded. It shouldn't be.

And finally, in response to a question from Richard about the opportunity to deal with some of the excesses in the private marketplace, I am simply listing, for everybody here to jot down, various initiatives that have been announced by the administration or by Congress or by the G-20 for the design to deal with that lost opportunity.

I take no position on those initiatives. I'm just listing, for those who say, gee, the way you're interpreting your role in not tinkering with the private marketplace, we're losing an opportunity; and I'm saying there are a lot of other initiatives out there to pick and choose that will try and deal with the lost opportunity that Richard referenced. That's all I'm trying to say.

QUESTIONER: (Off mike.)

SALOMON: That's enough, Charlie. Thank you.

FEINBERG: Yes. Yes. Yes.

QUESTIONER: (Off mike.)

SALOMON: I want to do two things. I want to thank you again for your support for the council. It means a great deal to our ability to put on good programming.

And Ken, thank you so much to you. That was a really terrific, candid presentation. (Applause.)

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