SIGTARP: Excessive Pay at Bailed-Out GM

GM money bagsA special inspector general report on compensation for executives at General Motors and Ally Financial blasts the Treasury Department for allowing excessive pay at the companies as taxpayers lost billions of dollars on the auto bailouts. The watchdog group issuing the report monitors the Troubled Asset Relief Program (TARP), which was set up to save financial corporations deemed “too big to fail” due to systemic risk to America’s financial system. The program was expanded to allow for the bailing out of the auto industry, despite the questionable use of funds specifically designated for financial institutions.

A NY Times piece states that the report criticizes the Treasury Department for loosening restrictions on TARP program pay limitations as follows:

Top executives at General Motors and Ally Financial, both of which received bailouts from the United States Treasury Department in 2009, were paid excessively even as taxpayers lost money, according to a special inspector general report.

The report, released Wednesday, criticized the Treasury Department for loosening its own restrictions on executive pay for G.M. and Ally year after year. These limits had been imposed on the companies in exchange for money that they received at the height of the financial crisis from the Troubled Asset Relief Program, or TARP, that was started by President George W. Bush and continued by President Obama. The special inspector general acts as a watchdog over that program.

The department, for example, in 2013 signed off on at least $1 million in pay for each of the top 25 employees at both G.M. and Ally, and approved $3 million in pay raises for nine G.M. employees, the report said. The department also allowed the tripling of the number of G.M. and Ally financial employees who received cash salaries exceeding $500,000 from 2009 to 2013.

The SIGTARP report points to increasing compensation for nine top executives at GM who saw their pay increase from a total of $32,307,500 in 2012 to $35,335,000 in 2013. That amounts to a pay increase of 9.4% for the group or $3,027,500. This as taxpayers lost billions of dollars on the bailout and GM share price struggled to stay above the 2010 IPO price of $33.

A good amount of the compensation for GM executives comes in the form of stock options. Further investigation discovers that the well-paid executives at GM bailed out of tens of millions of dollars worth of GM shares over the past year or so. The time period for the heavy insider selling coincides with GM’s ongoing costly recall debacle. Less informed GM shareholders have seen their stock value continue to slide as the GM executives took advantage of the US Treasury Department’s generosity by bailing out of the taxpayer-provided assets.

A search on Yahoo’s insider transactions site finds that eight top GM executives sold over $36 million worth of shares for the 12 month period of mid-March of 2013 to mid-March of 2014. Millions of dollars worth more have been sold since then. Cronies of the Obama Administration appear to do the best, with the Obama appointees of ex-CEO Dan Akerson and Board of Directors member Stephen Girsky leading the rush to sell.

According to a Forbes bio, Stephen Girsky was appointed to the GM board in July of 2009 during the company’s bankruptcy process. Just prior to being appointed, Mr. Girsky “provided advisory services to the UAW.” Wow, what a surprise.

Girsky went on to various leadership positions for GM regarding global strategy. Such great GM global successes (sarcasm intended) as losing billions of dollars in Europe and investing a billion dollars in Russia (see how that’s working) pale compare to Mr. Girsky’s seemingly more valuable contribution to the UAW. Girsky’s hard work was rewarded with a total compensation package of $6,389,584 in 2013, up from $5,757,077 in 2012. I would hate to see what the guy would have been paid without Treasury restrictions!

I added up about $8 million worth of GM shares sold by Girsky in the 12 month period ending mid-march of 2014. Most of the shares came from stock options at no cost, courtesy of the US taxpayer. Since then, Girsky has sold another approximate $2.8 million worth of shares.

Dan Akerson is the only executive at GM to dump more shares than Stephen Girsky. Akerson was CEO at GM from September of 2010 to January of 2014 doing a bang-up job of overseeing GM as they overlooked (or covered-up) deadly defects in their vehicles. As a reward for his fine services, Akerson made $9,071,309 in 2013 of which $7,302,206 was in the form of stock awards.

I counted roughly $8.6 million worth of GM shares sold by Akerson in the same 12 month period ending mid-March of 2014 when executives were living high on the hog thanks to taxpayer funding. Another approximate $4.4 million worth has been sold by Akerson since then.

Current GM CEO, Mary Barra, didn’t do too poorly, either. She sold about $3.4 million worth of her GM shares in the 12 month period followed by about another $1.6 million worth since. It certainly seems that those in the know at GM are selling shares at a time when prognosticators continue to hype the auto industry recovery and overlook the problems at GM.

GM share price currently is less than when the company came public in late 2010. For the four year period, GM has lagged the broader S&P 500 by about 60%. Considering that auto sales are near all-time highs, investors must wonder how poorly GM is managed as the company struggles during the best of times for the industry.

The reports of excessive pay at GM as taxpayers lost money is just one more example of the questionable motivations behind the Obama auto bailout process that saw executives and UAW members favored over other less politically popular classes. The poor performance of GM shares confirms that the bailout was not the success America has been led to believe it was. It is a further travesty that GM executive pay has gone up inversely proportionate to share performance.

An auto manufacturer that received $50 billion of taxpayer money as they were relieved of about $28 billion of debt should be able to at least perform as well as broader markets during an auto sales boom! In addition, about $30 billion of tax credits was gifted to GM from the Treasury Department as tax laws were changed to benefit the company. If the fact that well-compensated executives at GM are dumping their shares of the company gives any indication, the future of New GM is not any brighter than that of the Old GM.

Mark Modica is an NLPC Associate Fellow.  

 

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