U.S. Department of the Treasury

1.       Completes Recovery Act mandate to review executive pay before tightening of standards :
The Special Master's review completed a requirement in the Recovery Act to examine payments made to executives between the date a firm received its initial TARP funding and February 17, 2009, when the Recovery Act introduced tighter standards on compensation and corporate governance.

• Covered the 419 firms that received taxpayer assistance prior to February 17, 2009: All firms that were assisted by taxpayers prior to enactment of the Recovery Act were subject to the review and responded to the Special Master's request for information on their executive pay.  
• Payments from TARP recipients to Top 25 executives after taxpayer funds provided: The review covered firms' Top 25 executives -- senior executive officers and twenty additional most-highly compensated employees.   For firms that had different Top 25 groups in 2008 and 2009, firms were required to submit information on both groups of executives.
• Special Master directed to seek to negotiate a reimbursement to the government for a payment determined to be contrary to the public interest: If a payment was determined to be inconsistent with the purposes of the Emergency Economic Stabilization Act of 2008, or TARP, or otherwise contrary to the public interest, the statute required the Special Master to seek to negotiate with the company and the employee for a reimbursements.
• Recovery Act provided authority to review, but not to force repayments: Although authority to conduct the review and obtain compensation information was provided under the statute and regulations, the Special Master had no authority to force reimbursements from firms or executives, or require any other remedy.

2.       Focused on highly compensated employees who received the type of payments later restricted by the Recovery Act and Treasury regulations :   Treasury regulations provided the Special Master the discretion to tailor the review, using factors like the overall compensation of the employee and the type of payments being made.

• Required detailed submissions on executives who earn more than $500,000 per year, and company certifications for those who earn less: The Special Master concluded that payments to executives earning $500,000 or less per year would be highly unlikely to be inconsistent with the public interest.   As a result, rather than require detailed submissions on every Top 25 executive, the Special Master allowed firms to certify that a particular executive earns $500,000 per year or less.
• 240 companies had no executives over the threshold; 116 had five or fewer: Most of the 419 firms certified that some of their Top 25 executives $500,000 or less per year.   For 240 institutions, certifications covered their entire Top 25 group; for 116 others, detailed submissions were required for less than five executives.
• Payments limited by subsequent rules: cash bonuses, retention awards, stock grants, golden parachutes and tax gross-ups:   The Special Master examined the extent of payments that, although legal and permitted under rules at the time, were later restricted by standards established under the Recovery Act and Treasury regulations.
• Of the $2.3 billion of payments analyzed, $1.7 billion in these categories: Of the payments reviewed by the Special Master, approximately 74%, fell into these categories.   The remainder of payments fell into categories such as base pay, delivery of stock, and course contributions and distributions of deferred compensation.
  
  

3.       Does not determine that payments were contrary to the public interest :   The Special Master did not determine that any payments were inconsistent with the purposes of [Section 111 of the Emergency Economic Stabilization Act of 2008] or the TARP or were otherwise contrary to the public interest.   The Special Master had no authority whatsoever to force repayments from employees or companies.

• Rules at the time allowed these kinds of payments:  Although the Recovery Act and Treasury rules later imposed much stricter limits on pay at TARP recipients, at the time the reviewed payments were made, compensation such as cash bonuses and retention awards were permitted by the rules in place at the time.
• Payments largely from firms that have reimbursed taxpayers:   Eleven of the seventeen firms the Special Master has contacted regarding his proposal have fully reimbursed the taxpayers.   Of the $1.7 billion in payments identified by the Special Master, more than 90% were made by firms that fully repaid, or were taken into consideration in the Special Master's determinations regarding exceptional assistance recipients.

4.       Proposes firms adopt policies that provide compensation committees with special restructuring rights :  The Special Master is proposing that firms adopt a prospective compensation policy.   Although the proposal is being made at the conclusion of the review, because the Special Master has not reached a determination that requires him to seek any reimbursement, the policy is not proposed as a remedy or settlement of a negotiation regarding any payments.

•  In a crisis situation, a firm would have authority to restructure, reduce or cancel payments to executives--and not be bound by guarantees: Under the proposal, if the company's board of directors has identified that the firm is in a crisis situation, the compensation committee would have the authority to restructure, reduce or cancel pending payments to executives--and this authority would supersede any rights and entitlements executives have in normal circumstances.  
• Reaffirms important principles in the Wall Street Reform law and banking regulators' guidance on incentive compensation: The proposed policy would give compensation committees flexibility and authority to set and adjust appropriate compensation at a crucial moment, consistent with provisions in the new regulatory reform law, which strengthens committee independence, and with banking regulators' principles for sound incentive compensation practices, which call for effective oversight by directors and an appropriate balance of risk and reward.
• Special Master proposed to 17 firms:   The Special Master made the proposal directly to 17 firms.   The firms were selected in consideration of the overall amounts they paid of bonuses, new stock grants, golden parachutes and other types of compensation later subjected to the tighter standards established by the Recovery Act and subsequent Treasury rules.   Of the $1.7 billion of these types of payments identified by the Special Master, these firms, in the aggregate, paid $1.6 billion.
• Entirely voluntary proposal: The entirely voluntary proposal is recommended by the Special Master for wide adoption.   A set of principles to guide a company adopting such a policy will be provided.   The principles provide flexibility for each firm, working with its regulator, to adopt a policy tailored to its particular business and circumstances.

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