On April 1, by a vote of 247 to 171, the U.S. House of Representatives passed the Pay For Performance Act of 2009.
The bill prohibits compensation payments that are “unreasonable or excessive” based on standards to be established by the U.S. Treasury Secretary. It also prohibits any bonus or other supplemental payment that is not directly based on performance-based standards to be set by the Treasury Secretary and will apply to executive bonuses and other performance compensation regardless of when employment contracts were signed. Affected companies will be required to file annual reports with the Treasury Secretary for all officers, directors and employees whose compensation exceeds $500,000, without naming them. Certain severance payments are excluded from the definition of “compensation payment.”
The bill also establishes a new federal “Commission on Executive Compensation” to study the executive compensation system for recipients of TARP funding and recommend legislative and executive actions.
The bill would apply to financial institutions that received or will receive capital investments by the Treasury Department under the Troubled Asset Relief Program (TARP) or the Housing and Economic Recovery Act, which covers Fannie Mae and Freddie Mac. Community financial institutions that receive no more than $250 million in TARP funds, as well as companies that have entered into a TARP pay-back schedule approved by the Treasury Department would not be covered by the bill.