Under the Treasury Rules, new executive compensation rules will govern all financial institutions that participate in the TARP Capital program. The provisions generally apply as long as the Treasury holds an equity or debt position, including warrants and the common stock underlying the warrants, in the institution. To be eligible to participate in TARP Capital, financial institutions must meet the following standards:
- certify that incentive compensation for senior executive officers (“SEO”) does not encourage unnecessary and excessive risks that would threaten the value of the institution;
- require that SEO bonus and incentive compensation be subject to “clawback” if the payment was based on materially inaccurate financial statements or performance metrics;
- prohibit any golden parachute payment to an SEO; and
- agree to deduct no more than $500,000 for an SEO’s compensation.
Powell Goldstein’s preliminary analysis of these standards are included in our Client Alert, titled “Treasury Issues Executive Compensation Rules for the TARP Capital Purchase Program.”