Earlier today, the Treasury Department issued guidance on significant new restrictions on executive compensation for financial institutions that receive government assistance under TARP and related programs. The new Treasury guidance distinguishes between financial institutions receiving current or future "exceptional assistance" (e.g., AIG, Bank of America, and Citi) and financial institutions that will receive assistance under new or future generally available capital access programs. To access the new Treasury guidance, click here.

The significant new executive compensation restrictions that apply to institutions receiving current or future exceptional assistance include the following:

  • Senior executive officer (SEO) compensation is limited to $500,000, except for restricted stock awards. Restricted stock awards may be cashed in only after the institution has repaid the government assistance.

  • The SEO compensation structure and the rationale for how compensation is tied to risk management must be submitted to a non-binding "say on pay" shareholder resolution.

  • Provisions must be in place to clawback bonus and incentive compensation payable to any top 20 senior executive if he or she is found to have knowingly engaged in deceptive financial practices. The prior clawback requirement applied only to the top five SEOs.

  • All golden parachute severance payments are banned for the top 10 senior executives (previously limited to the top five SEOs). Also, the next 25 senior executives cannot receive golden parachute severance payments in excess of one year's compensation.

  • The board of directors must adopt a company-wide policy on "luxury expenses" (e.g., aviation services, office renovations, entertainment, conferences, and events) and post it on the institution's Web site.

While the foregoing new restrictions apply to any institution receiving exceptional assistance, similar and slightly less restrictive limitations are proposed for financial institutions that will receive assistance under new generally available capital access programs.

For further information on the Emergency Economic Stabilization Act, please contact:

Dominic J. De Simone, Co-Chair, Commercial Real Estate Recovery
Joseph A. Fanone, Public Finance Department
Thomas A. Hauser, Business and Finance Department
Alan S. Kaplinsky, Banking and Consumer Financial Services
Justin P. Klein, Business and Finance Department
Vincent J. Marriott III, Bankruptcy, Reorganization and Capital Recovery Group
Brian M. Pinheiro, Employee Benefits and Executive Compensation Group

Prior EESA Alerts

January 27, 2009
Special Inspector General of TARP to Begin Oversight Initiative

January 16, 2009
Treasury Department Issues Term Sheet and Announces February 13, 2009 Deadline for Subchapter S Corporations to Participate in the Capital Purchase Program

January 6, 2009
Federal Reserve Announces Additional Details for its Term Asset-Backed Securities Loan Facility (TALF)

December 12, 2008
Treasury Department Issues Closing Documents for Private Financial Institutions to Participate in the Capital Purchase Program

December 1, 2008
SEC Staff Issues Sample Guidance to CPP Participants Filing Proxy Statements

November 26, 2008
Federal Reserve and Treasury Announce Two New Programs To Boost Credit Availability

November 18, 2008
Treasury Department Issues Term Sheet and Announces December 8, 2008 Deadline for Private Financial Institutions to Participate in the Capital Purchase Program

November 14, 2008
Kashkari Details Future TARP Deployment Strategy

November 12, 2008
Treasury Secretary Details TARP Strategy 

November 7, 2008
Treasury Department Announces Solicitation Regarding Asset Management Services in Connection with EESA Capital Purchase Program

November 6, 2008
Beware: Is There a "Trojan Horse" in the Capital Purchase Program Securities Purchase Agreement?

October 23, 2008
Kashkari Testifies Before Senate Banking Committee

October 14, 2008
Treasury, Federal Reserve, and FDIC Joint Statement Capital Purchase Program

October 13, 2008
Remarks on TARP to Institute of International Bankers

October 7, 2008
Emergency Economic Stabilization Act of 2008/TARP

October 6, 2008
Employee Benefits and Executive Compensation Issues Connected to Emergency Economic Stabilization Act of 2008

October 6, 2008
Emergency Economic Stabilization Act of 2008


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