Compensation regulation

Treasury requires CEOs of banks in TARP to certify executive compensation curbs

By Neil Roland

Posted: January 20, 2009, 4:05 PM ET

In
one of its final acts under Secretary Henry Paulson, the Treasury
Department issued a new requirement that chief executives of banks
getting aid under the $700 billion bailout program certify that they
are complying with its executive compensation limits.

Until now,
only members of the banks' compensation committees have been required
to put their names on the line in asserting institutions' compliance
with curbs on senior executives' severance pay and other incentives.

"This
pounds it home that CEOs are really on the hook for the accuracy of
banks' representations on executive pay," banking consultant Bert Ely
of Alexandria, Va., said in an interview.

The CEOs will have
135 days from the end of their institutions' fiscal years to certify
that their banks have complied with the standards set out in the
October legislation, the Treasury said in a statement on Jan. 16.

The
top executives also will have 120 days after their financing agreements
with Treasury to certify that the compensation committee and senior
risk officers have ensured that executives' contracts don't encourage
them to take unnecessary financial risks.

Under the October legislation as it applies to senior executives, banks receiving bailout money:

• can't make "golden parachute" severance payments equal to at least triple the base pay of executives;

•
must subject any bonuses or incentives to "clawbacks" by the
institution if payments are based on banks' misleading financial
statements;

• can't offer incentives that "encourage unnecessary
and excessive risks that threaten the value of the financial
institution," and

• must not deduct for tax purposes more than $500,000 in pay for each executive.

These limits apply to the CEO, the chief financial officer and the next three mostly highly compensated executives in a bank.

Also,
the Treasury wrote to the 20 banks that received the most capital from
the bailout, asking for monthly reports on business and consumer loans
in an attempt to encourage lending, according to Bloomberg News.

"I
find this troubling because it ignores the lending that banks are doing
and paves the way for credit allocation," Mr. Ely said.

Mr.
Paulson has been criticized by lawmakers of both parties for failing to
require banks to use their bailout money to increase lending.

The
Senate last week released the second half of the $700 billion bailout
following a request by then-President George W. Bush at the request of
then-President-elect Barack Obama.

Mr. Obama, sworn in as the
nation's 44th president today, has signaled that he intends to impose
stricter conditions on the recipients of rescue funds to ensure...

more...http://www.pionline.com/apps/pbcs.dll/article?AID=/20090120/REG/901209967/1030