May/June 2009 / Governance
Executive Pay Limits Under the New Economic Bailout Laws
The Emergency Economic Stabilization Act of 2008 established the TARP program, funneling $700 billion to U.S. companies, public and private. Some of the those companies continued to provide lavish bonuses to senior executives, precipitating a strong public reaction. Congress then passed the American Recovery and Reinvestment Act of 2009, which includes new compensation restrictions for TARP recipients.
Under “the Recovery Act,” the CEO and CFO of TARP recipients must certify to the SEC that the company has adhered to specified compensation controls. These include limits on incentives for excessive risks, limits on bonuses for senior executives and other highly compensated employees and “clawback” provisions that may apply if incentive compensation was based on material inaccuracies. There are major limitations on “golden parachutes.” Other provisions include limits on compensation deductions and detailed specifications for a compensation committee.
“Never before has the U.S. government intervened in the private sector to this degree,” the author says. “Whatever the effect on our economy, it will change the executive pay landscape for a long time to come.”
Alan M. Levine is a partner at Morrison Cohen, LLP in the firm’s Executive Compensation and Benefits department. He specializes in advising public and private companies on the interconnected tax, corporate governance, securities and ERISA aspects of executive compensation. Contact him at alevine@morrisoncohen.com.
Tali R. Harel is an associate at Morrison Cohen, LLP in the firm’s Executive Compensation and Benefits department. Her practice includes representing clients in a variety of corporate transactions, and drafting, negotiating and implementing compensation plans.
