June 12, 2009
Authored by: Bryan Cave Leighton Paisner
As part of the Interim Final Rule issued on June 10, 2009, there a couple of items of immediate concern that participating institutions should be aware of: a prohibition on tax gross-ups and the required reporting of certain perquisites. Both of these requirements are not found in the statute, but rather represent additional restrictions imposed by the Treasury Department.
Subject to a limited exception for foreign-tax equalization payments, institutions that have received TARP funds generally will not be permitted to pay any tax gross-ups to any senior executive officer or any of the next twenty most highly compensated employees. Accordingly, institutions receiving TARP capital will not be able to provide a tax gross-up to compensate executives for the taxes related to non-cash compensation, including company cars or non-qualified deferred compensation plans. The regulation also prohibits agreeing to make the gross-up payment in the future, after the institution has repaid its obligations under TARP.
Each participating financial institution will annually have to report to the Treasury and the institution’s primary regulator any perquisites whose total value exceeds $25,000 for any employee who is subject to a bonus limitation. The bonus limitations, and thus the perquisite reporting requirement, apply on a sliding scale as follows:
1. For institutions receiving less than $25 million, only the most highly compensated employee cannot receive a bonus.
2. For institutions receiving $25 million but less than $250 million, the five most highly compensated employees cannot receive a bonus.
3. For institutions receiving $250 million but less than $500 million, the senior executive officers and the ten next most highly compensated employees cannot receive a bonus.
4. For institutions receiving $500 million or more, the senior executive officers and the twenty next most highly compensated employees cannot receive a bonus.