On Tuesday, Special Master for TARP Executive Compensation, Kenneth R. Fienberg, issued supplemental determinations with regard to the 2010 compensation payments and structures of American International Group, Inc. (AIG) and Ally Financial Inc. (Ally). The supplemental determinations follow the March 23, 2010 ruling of the Special Master on the 2010 compensation for all institutions receiving TARP exceptional assistance. The Special Master was required to undertake the March review pursuant to Section 111(f) of Emergency Economic Stabilization Act of 2008 (EESA), as amended, and Treasury regulations (31 C.F.R. § 30.16(a)), to determine whether any such payments were inconsistent with the purposes of section 111 of EESA or TARP, or otherwise contrary to the public interest.
AIG’s supplemental determination, provides responses to four issues for which AIG sought guidance following the March ruling.
The first issue was the inadvertent misidentification of an AIG executive in the Special Master’s initial review, resulting in the omission of one of the Top 25 executives from AIG’s submission. After being made aware of the error, and being provided the compensation structure of the executive, the Special Master determined that the executive’s compensation is consistent with the public interest standard.
The second issue for which AIG sought a supplemental determination related to the hiring of a new executive officer. Upon reviewing the proposed compensation structure for the new executive, the Special Master determined that it was consistent with compensation structures previously approved for AIG. Therefore, the compensation structure was ruled to be consistent with the public interest.
The third issue related to one employee who would likely exceed the $500,000 or less annual compensation standard as result of his performance under sales commission plans. Here, because the rules exclusion of reasonable “commission compensation” from restrictions applicable to bonus and incentive compensation and parity considerations for employees in similar positions competing in similar markets, the Special Master determined that the payment of “commission compensation” to the employee was not inconsistent with the public interest.
The final issue for which AIG sought guidance on was whether the $25,000 limit on perquisites and “other” compensation was violated by paying an employee relocation expenses, when the relocation was undertaken at the request of the company. The Special Master determined that such payments were appropriate, provided that they did not include tax gross-ups and were available to similarly situated employees.
Ally's supplemental determination provided responses to two issues for which Ally sought guidance following the March ruling.
The first issues related to Ally’s request to alter the compensation of its Top 25 executives following a substantial increase in the executive’s responsibilities following the March ruling. Specifically, Ally proposed to increase the executive’s cash salary by $100,000 and stock salary by $166,667. The Special Master found that, in light of the substantial increase of the executive’s responsibilities and the “current and expected contribution of the executive to the value of Ally,” the alteration was not inconsistent with the public interest.
The second issue resulted from the desire of some of Ally's Top 25 executives to voluntarily agree to a longer redemption period for all or a portion of their stock salary. The Special Master determined that, although the current rules require significant allocations to long-term compensation, permitting longer redemption periods for stock salary under Ally’s proposal would be consistent with the public interest.