The federal government’s extraordinary multi-pronged attack against executive compensation practices took another step forward, this time with the Federal Reserve Board of Governors (“FRB”) taking aim. On October 22, 2009, the FRB proposed new guidance that will dramatically affect incentive compensation arrangements for the banking industry. The proposed guidance is consistent with and largely patterned after the multi-national Financial Stability Board’s September 25, 2009 report titled “FSB Principles for Sound Compensation Practices.” Not to be left out of the headlines, on the same day, the Special Master for the government’s Troubled Asset Relief Program (“TARP”) Executive Compensation also announced significant reductions in compensation for the top executives and employees at companies receiving exceptional TARP assistance along with various other mandated reforms to compensation practices.
June 10,2009 marked an extraordinary day of announcements affecting executive compensation for both recipients of financial assistance from the Troubled Asset Relief Program (“TARP”) and other publicly held companies, including:
- The U.S. Department of the Treasury (“Treasury”) issued a statement outlining the Administration’s expectations and planned legislative proposals for executive compensation reform for publicly held companies.
- The Securities and Exchange Commission (“SEC”) announced it will soon be proposing new expanded compensation disclosure rules that could take effect in time for the 2010 proxy season.
- The Treasury issued regulations providing its much anticipated guidance on standards for executive compensation and corporate governance for TARP recipients.
- The Treasury established an Office of the Special Master for TARP Executive Compensation (the “Special Master”).
The Emergency Economic Stabilization Act of 2008 (“EESA”), which President Bush signed into law on October 3, 2008, created the Troubled Asset Relief Program (“TARP”) under which the United States Treasury (the “Treasury”) is generally authorized to purchase troubled assets from certain financial institutions. EESA establishes different sets of restrictions for financial institutions based on whether they sell troubled assets directly to the Treasury or whether they sell troubled assets through an auction process. EESA also modified certain tax code provisions that placed limitations on the deductibility of compensation paid to certain executives. This blog provides a brief overview of EESA provisions that address the executive compensation practices of financial institutions participating in TARP.…