Earlier this morning, President Obama announced new executive compensation restrictions for financial institutions receiving "exceptional assistance" in the future from the U.S. government. (Exceptional assistance is bailout money that is customized beyond the generally available programs). The announcement includes several key provisions.
Highlights of this new program, which has been receiving tremendous media attention, are as follows:
- Limits senior executives to $500,000 in total annual compensation, other than the Restricted Stock Exception;
- Provides a Restricted Stock Exception: Excess pay above $500,000 may be paid, but only in the form of restricted stock or another long-term vehicle that vests when (1) the government has been repaid with interest or (2) after a specified period according to conditions that consider (among other factors) the degree a company has satisfied repayment obligations, protected taxpayer interests or met lending and stability standards;
- Requires executive compensation structure and strategy to be fully disclosed and subject to a "Say on Pay" shareholder resolution;
- Expands the number of executives who will be subject to clawbacks and restrictions on golden parachutes that were originally imposed in exchange for government assistance; and
- Requires the institution’s Board of Directors to adopt a company policy for approval of luxury expenditures.
Further, the U.S. Treasury department announced plans to propose similar restrictions to those described above for executives at financial institutions who receive generally available assistance. These restrictions would go into effect after a public comment period.
In addition, the announcement included a proposal to begin "a serious effort" to both examine how company-wide compensation strategies at financial institutions – not just those related to top executives – may have encouraged excessive risk-taking that contributed to current market events and to begin developing model compensation policies for the future.
Here is a link to the February 4, 2009 U.S. Treasury Department press release: http://www.ustreas.gov/press/releases/tg15.htm