Archive for February 20, 2009
Economic Stimulus Legislation Adds to Executive Compensation Restrictions for TARP Participants
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (ARRA). While many aspects of this “stimulus” legislation have been debated publicly for weeks, new executive compensation restrictions for financial institutions participating in the Troubled Asset Relief Program (TARP) were inserted just one day before the final congressional vote took place. Unlike the Secretary of Treasury’s February 4th revisions to the TARP executive compensation rules, which are not retroactive, these new executive compensation restrictions will apply to all TARP participants, including those that have already received funding under TARP. Here is a brief overview of these new restrictions.
Restrictions on Golden Parachute Payments. ARRA bans any “golden parachute payment” to a TARP participant’s senior executive officers or any of the institution’s next five most highly-compensated employees for the entire period in which Treasury holds the institution’s preferred shares. ARRA defines “golden parachute payment” broadly, covering any payment for departure from an institution for any reason, except for payments for services performed or benefits accrued.
This provision clearly targets the handsome severance packages received by chief executives at large, failing financial institutions. Unfortunately, the law does not distinguish between such packages and standard retirement packages received by most workers in the broader economy. Hopefully, in his rules implementing this provision, the Secretary of the Treasury will provide for such a distinction in his interpretation of the exception for “services performed or benefits accrued.”
Restrictions on Incentive Compensation. Employees subject to ARRA’s incentive compensation restrictions will be banned from receiving or accruing any bonus, retention award or incentive compensation, other than long-term restricted stock (in an amount that does not exceed 1/3 of the executive’s total annual compensation and does not fully vest until the government is repaid) for as long as the U.S. Treasury holds preferred shares of his or her employer. (more…)
