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Chrysler's Nardelli: reports on compensation loophole false
By Poornima Gupta

DETROIT (Reuters) - Chrysler Chief Executive Bob Nardelli said on Friday that reports that the company's executives have found a loophole that would help them avoid pay limits mandated by the U.S. government were false.

"I want to assure you that these reports are absolutely, positively incorrect," he said in a memo to staff that was obtained by Reuters. "Chrysler understands the limitations on compensation for senior executives during the term of the government loans."

Chrysler filed for bankruptcy on April 30 after talks with bondholders to restructure its debt collapsed. It also confirmed a global strategic alliance with Italy's Fiat SpA on the same day.

The new Chrysler-Fiat partnership could help the automaker's executives avoid U.S. restrictions on executive pay by having some top Chrysler officials designated as Fiat employees, according to Chrysler bankruptcy documents.

The documents say any of Chrysler's top officers including the CEO can be deemed Fiat employees who are "seconded" to Chrysler.

Earlier this week, local and national media reported that Chrysler had found a loophole to help avoid government-mandated pay limits for executives.

Corporate compensation has seen renewed scrutiny after public outrage over American International Group Inc's decision to pay $165 million in retention bonuses to some employees after accepting $180 billion in government aid to prop up the company.

President Barack Obama has set a $500,000 annual cap on pay for top executives at companies receiving taxpayer funds.

Nardelli said "Chrysler has and will continue to fully comply" with all conditions relating to executive compensation.

The CEO also said in the memo that the automaker has started the process of paying suppliers for invoices that pre-date Chrysler's bankruptcy filing.

"At the same time, we initiated a procedure to move supplier contracts over to the new company established in a global alliance with Fiat once a sale is complete," he said.

Chrysler aims to complete a sale of most of its operations to Fiat later this month.

"Today's announcement that the vast majority of Chrysler suppliers will receive payments for parts they have shipped and will continue business relationships with Chrysler going forward should provide an important measure of certainty and stability to America's auto supply base," an Obama administration official said.

The automaker will mail details to 1,200 of its suppliers on how suppliers can receive payment for pre-bankruptcy claims and how their contracts can be assumed by the new company, according to the memo.

"It is critical to get all of our key suppliers on board to take on new agreements and move business quickly to the new company," he said in the letter.