The U.S. pay czar on Friday expanded a crackdown on pay packages at bailout recipients, ruling that cash salaries will be mostly limited to $500,000 for a second-tier of top earners.

The new limits from the Treasury Department's Kenneth Feinberg come amid outcries from some companies on a taxpayer lifeline that they cannot retain or attract key employees, threatening their ability to recover to the point that they can repay bailout funds.

The rulings set the compensation structures from the 26th through 100th highest-paid employees at four firms: Citigroup Inc, American International Group, General Motors Co, and GMAC.

Chrysler and Chrysler Financial were exempted during this round of rulings because total pay for their second-tier executives already does not exceed $500,000, Treasury said.

Feinberg said to date, the bailout companies have identified about 12 exceptional cases that would exempt them from the $500,000 cash salary cap.

AIG was a key recipient of exemptions. Feinberg's determinations found that due to the unique financial circumstances currently found to exist at AIG and because there are several critical employees, restructuring those contracts would not be consistent with public interest.

Instead, Feinberg reduced the maximum allowable percentage of cash in their compensation, the rulings said.

Feinberg also signaled some flexibility in reviewing compensation for a new chief executive for GM, telling a news briefing that he would take a fresh look at proposed pay for an incoming CEO. He added it was vital that GM, majority owned by the government, be competitive.

PUBLIC OUTRAGE

Feinberg, a Washington lawyer appointed by Obama in June after public anger exploded over high pay at bailout firms, earlier this year slashed the pay of the top 25 employees at those companies.

Pay issues have been in the spotlight this week. The United Kingdom plans a 50 percent tax on bank bonuses and Goldman Sachs -- which already repaid its bailout funds -- voluntarily pledged its top executives will not receive cash bonuses for 2009.

While Feinberg's latest rulings come at the end of 2009, they are expected to set a baseline for 2010 compensation.

The rulings also mandated that a majority of total compensation will not be released to an executive for three years, and that in most cases at least 50 percent of compensation must be long-term stock awards.

Further, overall cash is limited in most cases to 45 percent of the total and all other pay must be in company stock.

Regarding incentive compensation, or bonuses, the total incentives are limited to a fixed pool, which Treasury said would require companies to carefully choose who to reward.

There cannot be runaway bonuses, Feinberg said during a media briefing.

All incentive pay is also subject to a clawback.

(Reporting by Karey Wutkowski and David Lawder)

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