Executives at the largest bailed out banks received unnecessary millions in compensation packages after the crisis because the government let them, the Special Inspector General for the Troubled Asset Relief Program said Tuesday. More than 700 institutions received emergency funding, but seven firms were given special status for receiving more than $350 billion combined from TARP and the Federal Reserve. Because of the size of their bailout, Congress allowed special master Kenneth Feinberg – later succeeded by Patricia Geoghegan – to set pay for the top 25 executives at these seven companies. They include American International Group (AIG), Bank of America (BAC), Citigroup (C), Chrysler Financial Services, Chrysler Holding, General Motors (GM) and Ally Financial (GJM). These firms have paid back $260 billion, or 74%, of the bailout. But SIGTARP found Feinberg gave in to pressure from these companies. They warned him if he did not provide pay packages competitive with other Wall Street firms, the executives would leave. "Although generally he limited cash compensation and made some reductions in pay, the Special Master still approved total compensation packages in the millions," SIGTARP said. "For example, Ally officials pushed for high pay, despite knowing that Feinberg was concerned that a majority of the company’s top 25 employees were part of the problem that resulted in the need for a bailout." Feinberg had the ability to limit packages to $500,000. Instead, between 2009 and 2011, he cleared salaries worth $5 million or more to 49 executives at the seven firms. The largest went to the new AIG CEO in 2009 Robert Benmosche, who was cleared to receive $10.5 million in cash and stock that year. Over those three years, AIG executives received roughly $59 million in salary. This for a firm that took $67.8 billion in TARP bailouts. Geoghegan, the current special master, wrote in a response to the report that the packages approved by the special master aligned with Treasury rules, and claimed they were constantly asked to strike a balance between limiting salary and making sure the firms could retain the executives necessary to pay the government back. The special master, overall, did cut cash compensation to the top 25 executives at the seven firms by more than 90% and reduced total salaries by half. Geoghegan also clarified that the special master successfully tied stock-based compensation to performance, and the $500,000 cash limit was a "guideline OSM adopted, not a provision of any statute or regulation." SIGTARP recommended the special master substantiate each exception it made to the $500,000 guideline and better document how it used market data to make its decisions. Geghegan agreed to both but said SIGTARP underestimated the guidelines the office used. Currently, federal regulators are drafting rules under the Dodd-Frank Act that govern what executives at systemically important financial institutions, or SIFIs, are paid. Deputy SIGTARP Christy Romero said it was crucial for the agencies to get this right. "The regulators’ strength and leadership in the area of executive compensation are critical," Romero said in the report. "Taxpayers are looking to the regulators to protect them so that history does not repeat itself." Write to Jon Prior. Follow him on Twitter @JonAPrior.