This article was originally published 16 February, 2009
On February 13, 2009, the United States Congress passed the American Recovery and Reinvestment Act of 2009 (the "Act"). The Act, which is expected to be signed by the President tomorrow, would apply retroactively and impose new executive compensation restrictions on all entities (each a "TARP recipient") that have received or will receive financial assistance under the Troubled Asset Relief Program (the "TARP") established under the Emergency Economic Stabilization Act of 2008 (the "EESA").
Among other things, the new standards would prohibit the payment of bonuses and incentive compensation to certain employees (except in the form of restricted stock subject to specified limitations and conditions), prohibit the payment of severance to a TARP recipient's top five most highly compensated executive officers and the next five most highly compensated employees and require each TARP recipient to permit an annual non-binding "say on pay" shareholder vote. These new executive compensation standards would apply to each TARP recipient for so long as any obligation arising from financial assistance provided to the recipient under the TARP remains outstanding. While the recipients of government funding under the Capital Purchase Program (the "CPP") are clearly intended to be covered TARP recipients under the Act, the extent to which participation in other programs, such as programs for loan purchase or loan guarantee, will be deemed to trigger the executive compensation provisions in the Act remains to be seen. In this regard, it is important to note that the guidelines for the Federal Reserve's Term Asset-Backed Securities Loan Facility incorporate the EESA executive compensation limits by reference for sponsors.
The executive compensation provisions in the Act amend the executive compensation provisions that were included in the EESA. The Act's adoption follows by only approximately two weeks the announcement by the Treasury of its own executive compensation guidelines (the "Treasury Guidelines"). To the extent the executive compensation provisions in the Act are more restrictive than the restrictions described in the Treasury Guidelines, they would presumably supersede those restrictions. However, it is important to note that both the Act and the Treasury Guidelines contemplate that the Secretary of the Treasury (the "Secretary") will adopt standards that will implement many of the executive compensation provisions included therein. These standards will, presumably, provide considerable additional guidance regarding how these unprecedented restrictions would be applied.
To view this document in its entirety please click here
Sidley Austin LLP, a Delaware limited liability partnership which operates at the firm's offices other than Chicago, London, Hong Kong, and Sydney, is affiliated with other partnerships, including Sidley Austin LLP, an Illinois limited liability partnership (Chicago); Sidley Austin LLP, a separate Delaware limited liability partnership (London); Sidley Austin, a New York general partnership (Hong Kong); Sidley Austin, a Delaware general partnership of registered foreign lawyers restricted to practicing foreign law (Sydney); and Sidley Austin Nishikawa Foreign Law Joint Enterprise (Tokyo). The affiliated partnerships are referred to herein collectively as Sidley Austin, Sidley, or the firm.
This article has been prepared by Sidley Austin LLP for informational purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Readers should not act upon this without seeking professional counsel.
