A Treasury Department news release said the standards issued under the Emergency Economic Stabilization Act, “generally apply” to the chief executive officer, chief financial officer, and the next three most highly compensated executive officers. (More information is at Notice 2008-94 ).
According to the news release, any firm participating in the three programs will be required to adopt the executive compensation standards:
Troubled Asset Auction Program—any financial institution that sells more than $300 million of troubled assets to the Treasury via an auction would be prohibited from entering into new executive employment contracts that include golden parachutes for the term of the program. Further, the financial institution may not deduct for tax purposes executive compensation in excess of $500,000 for each senior executive; the financial institution may not deduct certain golden parachute payments to its senior executives and a 20% excise tax will be imposed on the senior executive for these golden parachute payments (More information is at Notice 2008-101 ).
Capital Purchase Program—Any financial institution participating in the Capital Purchase Program will be subject to more stringent executive compensation rules for the period during which Treasury holds equity issued under this program. The financial institution must meet certain standards, including: ensuring that incentive compensation for senior executives does not encourage unnecessary and excessive risks that threaten the value of the financial institution; required clawback of any bonus or incentive compensation paid to a senior executive based on statements of earnings, gains, or other criteria that are later proven to be materially inaccurate; prohibition on the financial institution from making any golden parachute payment to a senior executive based on the Internal Revenue Code provision; and agreement not to deduct for tax purposes executive compensation in excess of $500,000 for each senior executive (More information is at Notice 2008-100 ).
Programs for Systemically Significant Failing Institutions—The Treasury Department is currently developing a third program to potentially provide direct assistance to certain failing firms on terms negotiated on a case-by-case basis. Treasury is issuing guidance for the executive compensation standards that will apply to the firms participating in such programs and their senior executives (Treasury Notice 2008-PSSFI).