Later this morning the White House and Treasury Department will announce new restrictions on executive compensation on financial institutions receiving government funds. An Obama administration official tells ABC News that under the new rules, companies receiving exceptional assistance from the Department of the Treasury -- such as AIG, for example -- will face executive compensation limits of $500,000 a year. This new limit comes with one exception: Additional compensation can be allocated in restricted stock that will not vest until taxpayers have been paid back -- the contractual dividends plus interest -- or after specified period according to conditions that consider the degree a company has satisfied its repayment obligations as well as lending and stability goals,among other factors. Companies that receive more general TARP (Troubled Asset Relief Program) funds are permitted to waive the $500,000 plus restricted stock rule if they disclose executive compensation and if requested, allow a non-binding “say on pay” shareholder resolution, allowing investors a non-binding vote on compensation for top executives. Banks receiving TARP funds will face tougher restrictions than exist now, the Obama official says, including restrictions on golden parachutes and “say on pay” shareholder policies.
Banks will also face tougher transparency rules, including on expenses such as aviation services (thank you Citigroup), office renovations (thank you John Thain), conferences and events, entertainment, holiday parties, and golden parachutes. These are stronger than the current TARP limits set by Congress last Fall, which forbid TARP recipients from taking a tax deduction for senior executive compensation above $500,000, and required companies to review and certify that the top five executives’ compensation arrangements did not encourage excessive and unnecessary risk-taking.
The new Obama TARP rules will require companies that have already taken TARP funds have to demonstrate they have complied with the previously issued restrictions and agree to strict monitoring and oversight going forward.
More on this as it develops!