A look at executive pay at GMAC LLC, the financing arm of
General Motors Corp. (GM), opens a window into how the government's
bailout program for banks is curbing bonuses.
In the third quarter, while the company was engaged in an epic
struggle to survive, it paid executives, many of whom were new to
their jobs, $28 million in what it called retention payments to
make up for the de minimis value of their long--term incentive
plans. Chief Executive Al de Molina received $4.64 million.
Fast forward several months to the end of the year: The company
secured a lifeline by turning itself into a bank, allowing it to
receive $5 billion under the U.S. Treasury's Troubled Asset Relief
Program. Senior executives received year-end bonuses of $10 million
in total, averaging only $476,000 a person. De Molina and three
other top executives received nothing.
These four are "the same team that successfully led GMAC through
a series of actions over the past year to stabilize the company,
including pursuing the bank holding company path," said Gina Proia,
a GMAC spokeswoman.
GMAC said the annual bonuses paid at year end to the 21 senior
executives are compliant with terms set by the Treasury for firms
receiving federal funds.
These payments come amid legislative efforts to curb executive
bonuses in the wake of public furor over payouts to American
International Group Inc. (AIG). Following a $173 billion federal
bailout, AIG paid $165 million in retention bonuses to employees
working in the unit responsible for the financial transactions that
led to the company's troubles.
Other companies receiving government funding, including Fannie
Mae (FNM), Freddie Mac (FRE) and Bank of America Corp.'s (BAC)
Merrill Lynch acquisition, have also come under fire for executive
bonuses.
For GMAC, year-end bonuses to the 21 executives didn't exceed $1
million for any one individual. Eighteen of the 25 top executives
had held their current positions for less than 18 months at the
company.
For instance, de Molina joined GMAC in August 2007 as the
company's chief operating officer and was promoted to chief
executive in April 2008. His base salary totaled $1.2 million last
year, according to regulatory filings. In 2007, he drew a salary of
$386,923 and received a year-end bonus of $900,000.
Aside from de Molina, the other three top executives who didn't
get year-end bonuses were Robert Hull, chief financial officer; Sam
Ramsey, chief risk officer; and Bill Muir, GMAC's president.
The $28 million GMAC paid to executives in the third quarter of
2008 was in cash, according to its annual report. The executives'
long-term incentive plans were rendered worthless as GMAC battled a
frozen debt market and rising losses.
The payments include $2.32 million each to Hull and Ramsey;
$1.74 million to Muir; and $696,000 to Sanjay Gupta, GMAC's chief
marketing officer.
These payouts were determined ahead of a debt restructuring of
$38 billion in November. This debt exchange was a central plank in
the lender's efforts to turn into a bank and receive government
aid.
"In light of the disruptive financial markets and the need for
additional refinancing activities, retention of key executives was
of paramount importance," GMAC said about these payments in its
annual report.
In addition, Ramsey and Hull received bonuses, or so-called
discretionary spot awards, in June, of $1 million and $250,000,
respectively. These payments, made before GMAC garnered bank
status, were in recognition of the executives' efforts in a massive
refinancing - including a $14 billion debt restructuring - that
GMAC finished in June last year. Ramsey earned a base salary of
$575,000 in 2008; Hull $500,000.
Also, Gupta earned a little over $1.26 million in bonuses in
2008, split between a $700,000 sign-on bonus and a $562,500
year-end bonus. His base salary in 2008 totaled $333,333.
The company's lending operations shrank dramatically last year
amid prohibitive borrowing costs fueled by the freeze in credit
markets and its sliding credit ratings. Losses piled up at GMAC and
its mortgage unit.
To survive, GMAC sought bank registration, which it received on
Dec. 24, giving the cash-strapped lender access to federal funds
and allowing it to borrow at cheaper rates.
The $5 billion capital infusion from the Treasury was seen as
critical for both the lender and co-owner GM, which uses GMAC to
finance car buyers and dealer inventories. GMAC is jointly owned by
GM and an investor group led by private-equity firm Cerberus
Capital Management LP. GM and the investor group will significantly
scale back their ownership in GMAC as a condition of the lender
becoming a bank-holding company.
For the fourth quarter, GMAC posted net income of $7.46 billion,
aided by a $11.4 billion gain from the bond exchange it commenced
in November. Its quarterly profit stanched five straight quarters
of losses totaling $7.9 billion.
But without the gain from this debt restructuring, GMAC's auto
finance unit posted a fourth quarter $1.31 billion loss, while
mortgage unit Residential Capital LLC bled $1.7 billion.
Eric Feldstein, GMAC's former chief executive, and James Jones,
ResCap's former president, left the company in 2008. Severance
payments, determined before GMAC's bank status, for Feldstein
totaled $5.09 million and $2.11 million for Jones, according to
regulatory filings.
-By Aparajita Saha-Bubna, Dow Jones Newswires; 617-654-6729;
aparajita.saha-bubna@dowjones.com