Pay Czar

What Was the Pay Czar?

"Pay czar" was the nickname given to Special Master for Executive Compensation Kenneth Feinberg. The role of the Special Master for Executive Compensation was to monitor compensation paid to executives of firms that received funds under the U.S. Troubled Asset Relief Program (TARP), which bailed out several companies, including banks, during the 2008 financial crisis.

Key Takeaways

  • "Pay czar" was the nickname given to Special Master for Executive Compensation Kenneth Feinberg during the 2008 financial crisis.
  • The Special Master for Executive Compensation was to monitor compensation for executives of firms that received taxpayer money via the TARP.
  • Kenneth Feinberg was appointed to scrutinize the compensation for the top 25 executives as well as 75 other employees of TARP recipients.

Understanding the Pay Czar

The U.S. financial system suffered from a major credit crisis as a result of the 2008 financial crisis. Many banks foreclosed on mortgages when homeowners defaulted on their payments. As a result, financial institutions were struggling to survive. The stock market, along with the economy, went into free fall, and by the end of 2008, panic was rampant. 

The Troubled Asset Relief Program (TARP) was created by the U.S. Treasury Department during the financial crisis. TARP was enacted by President George W. Bush on October 3, 2008, as part of the Emergency Economic Stabilization Act. Over $400 billion was allocated to stabilize banks, credit markets, and some corporations. TARP was also designed to support the financial markets, encourage lending, and prevent financial institutions from failing. Without the government paying taxpayer money to these companies that became insolvent during the crisis, many would have had to close. The government was afraid of the economic effects if large firms closed their doors and deemed these companies "too big to fail."

Since the companies had gotten into trouble and were now receiving taxpayer money, a pay czar was appointed to scrutinize the compensation paid to executives of these companies to prevent them from taking advantage of the taxpayers. The term "pay czar" was applied to Kenneth Feinberg following his appointment by the U.S. Treasury Department to monitor these compensation awards to executives of TARP recipients.

Although the pay czar made recommendations on executive pay, these were non-binding and advisory, meaning the pay czar had no legal authority to make a binding ruling on executive compensation.

Role of the Pay Czar

Following the disbursal of TARP funds to some of the country's largest financial institutions and businesses, many in the media and general public grew angry over the exorbitant bonuses being given to the executives of these bailed-out institutions. Subsequently, the position of Special Master for Executive Compensation was created to regulate such awards.

The primary responsibilities of the pay czar were to determine if certain employees of a TARP recipient had received exceptional financial assistance. Companies that received TARP assistance included:

  • General Motors Co. (GM)
  • Ally Financial (formerly GMAC) (ALLY)
  • Chrysler and Chrysler Financial
  • AIG or American International Group Inc. (AIG)
  • Bank of America Corporation (BAC)
  • Citigroup Inc. (C)

Kenneth Feinberg was required to determine the compensation for the top 25 executives of companies that were TARP recipients. Although Feinberg did not rule over individual payments for each executive, he was required to make determinations of the compensation structures of 75 additional employees along with the top 25 executives. The pay czar had to balance the need to protect the public interest while also allowing companies to compensate their employees in an appropriate manner.

The Pay Czar's Compensation Standards

In determining whether compensation met the public standard, the pay czar focused on the following areas: 


The compensation structure at a company could not have incentives that encouraged the employees and executives to take excessive risks that could threaten the stability of the company. This included any short-term increases in performance-based pay that might be awarded through compensation that might undermine the long-term growth and health of the company.

Taxpayer Return 

The compensation should reflect the need for the company to remain competitive and recruit talented employees so that the company or TARP recipient could pay back its financial obligations to the government.

Appropriate Allocation 

The compensation structure had to be allocated in a way that focused on both short-term and long-term performance incentives. These incentives included contributions to pensions and cash incentives. The performance-based incentive also had to be relevant and achievable so that the employee had an incentive to achieve their goal. The performance also had to be tied to the performance of the company or the division.

Comparable Compensation 

The compensation structure needed to be consistent and not excessive compared to other companies or similar positions or roles within other companies.

Employee Compensation vs. TARP Value 

The pay for each employee had to reflect the contributions of that employee to the value of the company, which might include revenue generation, risk management, and corporate leadership. Company policies and regulations had to also be considered and whether the employee was contributing in such a manner that was valuable to the company, which ultimately helped the TARP recipient repay the taxpayer.

Income Guidelines

The pay czar frowned upon guaranteed bonuses, and limited compensation to $500,000 per year and any remaining compensation was tied to performance. The incentive pay was to be delivered in a mix of stock (or equity) and cash but also contained a clawback provision allowing for the income to be pulled back if it was deemed inaccurate. Also, significant amounts of pay were not to be allocated to executives that were not performance-based and were difficult for shareholders to determine their value, including incentives within executive retirement plans.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. U.S. Department of the Treasury. "Kenneth R. Feinberg, Special Master for TARP Executive Compensation Written Testimony Before the House Financial Services Committee." Accessed Feb. 9, 2021.

  2. U.S. Department of the Treasury. "TARP Programs." Accessed Feb. 9, 2021.

  3. U.S. Department of the Treasury, Office of Financial Stability. "Troubled Asset Relief Program Four Year Retrospective Report: An Update on the Wind-Down of TARP," Page 37. Accessed Feb. 9, 2021.