By Dan Wilchins and Steve Eder
NEW YORK (Reuters) - CIT Group Inc <CIT.N> said its new Chief Executive John Thain will get an annual base salary of $6 million, most of which is in stock, and a bonus of up to another $1.5 million, in a nod to compensation practices popularized by the Obama administration's pay czar.
The former Merrill Lynch & Co CEO's salary includes $500,000 in cash, $2.5 million of restricted CIT stock with a holding period of one year and $3 million in stock restricted for three years, the company said in a regulatory filing.
Paying relatively high salaries largely in stock was an idea put into practice by pay czar Kenneth Feinberg, who is in charge of setting compensation levels for top employees at companies that received multiple U.S. bailouts, such as American International Group Inc <AIG.N>.
CIT received $2.3 billion from the United States' Troubled Asset Relief Program in December 2008. That obligation was wiped out as part of CIT's bankruptcy in what may be one of the biggest losses for the TARP program.
Any possibility that the government could have still recouped a piece of its investment was wiped out on Monday as the company announced that the contingent value rights issued to the government as part of the bankruptcy were worthless.
CIT could have issued shares to holders of the rights if the company performed well enough but instead, the rights have expired without value.
"While the U.S. Treasury no longer has an investment in CIT, we are generally endeavoring to apply Treasury governance best practices," said spokesman Curt Ritter.
Compensation experts said paying stock as a salary is a good way to offer potentially huge payouts to executives, without paying large bonuses that attract public ire.
Thain's shares will rise or fall in value along with the fortunes of CIT, giving him an incentive to work to improve the fortunes of the lender that just emerged from bankruptcy reorganization.
"He's got skin in how the thing does," said Alan Johnson, a Wall Street compensation consultant.
"It's a lot of stock. It is not much cash. And if the stock craters, he isn't going to get much at all."
Thain's restricted shares are subject to early payment if he dies, becomes disabled, or CIT sells itself, the company said in its filing. CIT's shares fell 14 cents to close at $30.61 after the company said late Sunday that it was hiring Thain.
Apart from salary, Thain, 54, may get an incentive award from the board during 2010 capped at $1.5 million, which vests two years after being granted. That incentive award is subject to payout restrictions for another year after vesting.
The company can take the incentive award back, if CIT determines that Thain has taken excessive and unnecessary risk, the filing says.
Thain's base salary is high by Wall Street CEO standards. Goldman Sachs Group Inc <GS.N>, for example, paid Chief Executive Lloyd Blankfein a base of $600,000 for 2009, and Morgan Stanley's <MS.N> John Mack received $800,000 last year. JPMorgan Chase & Co <JPM.N> CEO Jamie Dimon received $1 million.
But Dimon and Blankfein received substantially higher bonuses in 2009 than Thain's target level.
Thain, who takes over from CIT's interim CEO, Peter Tobin, was hired partly for the expertise he gained restructuring the New York Stock Exchange.
Thain's compensation is subject to federal regulations, including Troubled Asset Relief Program and Federal Deposit Insurance Corp regulations, CIT said.
Separately, CIT said it plans to prepay $750 million of its $7.5 billion first lien credit facility using cash on hand in a move to reduce some of its highest cost debt.
(Additional reporting by Supantha Mukherjee in Bangalore and Christian Plumb in New York; editing by Gunna Dickson, Andre Grenon and Bernard Orr)