Revised Executive Compensation Requirements For Participants Under The Troubled Assets Relief Program

On February 13, 2009, Congress passed the American Recovery and

Reinvestment Act of 2009 ("ARRA"), widely described as

the Stimulus Bill. President Obama is expected to sign ARRA into

law shortly, and the following summary assumes that ARRA will

become law. ARRA significantly expands the executive compensation

requirements previously imposed under the Emergency Economic

Stabilization Act of 2008 ("EESA"), which established the

Troubled Assets Relief Program ("TARP"). ARRA's

executive compensation restrictions apply to any entity that has

received or will receive financial assistance under TARP (a

"TARP Recipient"), and generally will continue to apply

for as long as any obligation arising from financial assistance

provided under TARP remains outstanding (the "TARP Assistance

Period").1

Section 7001 of ARRA amends Section 111 of EESA in its entirety.

Under EESA, Section 111 created different executive compensation

restrictions depending on the nature of the assistance received by

a TARP Recipient and provided broad, general rules that were

fleshed out in subsequent guidance issued by the Secretary of the

U.S. Department of the Treasury and the Secretary's delegates.

As amended by ARRA, Section 111 provides a more comprehensive,

uniform set of rules for all TARP Recipients. Yet more agency

guidance is a certainty. ARRA left in place EESA's tax

deductibility and excise tax provisions. EESA's executive

compensation requirements represent an amalgamation of EESA's

prior executive compensation requirements, a number of the proposed

executive compensation guidelines announced by the Treasury on

February 4, 2009 (the "Treasury Guidelines"), and a

number of the expansive executive compensation requirements

contained in the initial U.S. Senate version of the Stimulus

Bill.

It remains to be seen what role or impact the Treasury

Guidelines will have once ARRA becomes law. For example, the

$500,000 annual compensation limit under the Treasury Guidelines

was not included in ARRA. Treasury may impose that limit, or other

limits, on future TARP Recipients as a condition to the receipt of

further TARP assistance using the ARRA restrictions as a

baseline.

The revised executive compensation requirements are summarized

as follows:

General Standards

TARP Recipients must implement and comply with the following

executive compensation and corporate governance standards during

the TARP Assistance Period:

Limits on compensation that exclude incentives for senior

executive officers to take unnecessary and excessive risks that

threaten the value of the TARP Recipient.

A provision for the recovery by the TARP Recipient of any

bonus, retention award, or incentive compensation paid to a senior

executive officer and any of its next 20 most highly compensated

employees based on statements of earnings, revenues, gains, or

other criteria that are later found to be materially inaccurate. A

TARP Recipient's "senior executive...