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Tag Archives: Executive Compensation

Financial Services Update – Issue 4

January Unemployment Numbers Released

On Friday, the U.S. Department of Labor released its monthly report showing that the unemployment rate unexpectedly declined in January to 9.7% from an unrevised 10% in December. However, nonfarm payrolls fell by 20,000 compared with a revised 150,000 decline in December. The two statistics are generated by different surveys, which explains how the unemployment rate improved despite a net loss of jobs. Jobs numbers are generated by surveying employers, while the unemployment rate is derived from a household survey.

Senate Financial Regulatory Bill

Senate Banking Committee Chairman Chris Dodd (D-CT) and Ranking Member Richard Shelby (R-AL) have reached an impasse during their negotiations over the Senate’s financial regulatory reform bill. Dodd and Shelby conducted a meeting Thursday that they had hoped could result in progress toward releasing a bipartisan bill. The primary point of contention between Dodd and Shelby continues to be over a possible new consumer regulatory agency. Dodd announced on Friday that he is forging ahead without Shelby and will release a draft bill later this month with the hope of gaining Republican support later in the process.

Volcker Testifies Before Senate Banking Committee

On Tuesday, White House Economic Advisor Paul Volcker testified before the Senate Banking Committee regarding his plan to decouple what he calls “proprietary and speculative activities” from traditional banking activities. During his testimony, Volcker stated “hedge funds, private equity funds, and trading activities unrelated to customer needs and continuing banking relationships should stand on their own.” During the hearing Chairman Dodd expressed frustration about the timeliness of Volcker’s proposal in relation to the Committee’s work on the legislation. Following the hearing, sources indicated that Dodd is likely to drop or change many of the recommendations in the proposed Volcker rule.

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Email This Content Email This Content Posted in Financial Services Update. Tagged with , , , . By Matt Jessee - Friday, February 5, 2010

Treasury Clarifies Interim Final Rule regarding TARP Executive Compensation Limitations

On December 7, 2009, the Treasury Department published corrections to the preamble and certain provisions of the interim final rules regarding TARP Standards for Compensation and Corporate Governance.

The amendments are generally technical in nature and are designed to clarify certain ambiguities in the original interim final rule and to conform the certification language to reflect the deadlines generally set forth in the regulation and to correct certain cross-references.

The two most important clarifications relate to the identification of most highly compensated employees and the applicability of the “say on pay” requirements.

With regard to the identification of the most highly compensated employees, the correcting amendments make clear that the senior executive officers should NOT be excluded from determinations of the most highly compensated employees.  The rule also makes clear that senior executive officers should not be double-counted; if a provision is applicable to the senior executive officers and a certain number of the most highly compensated employees of the TARP recipient, the senior executive officers (because they are already subject to the provision) are excluded for purposes of determining the most highly compensated employees that are also subject to the provision.  Accordingly, for TARP recipients that received less than $25 million in Capital Purchase Program funding, the prohibition on the payment or accrual of bonus will apply only to the most highly compensated employee (regardless of whether such employee is a senior executive officer).

The correcting amendments also make clear that private companies are not subject to the requirement to provide shareholders a “say on pay.”  Only TARP recipients otherwise subject to SEC regulation are required to provide shareholders with a nonbinding resolution on executive compensation.

Email This Content Email This Content Posted in TARP Capital. Tagged with , . By Rob Klingler - Monday, December 14, 2009

Summary of Federal Reserve Proposed Compensation Guidance

On October 22, 2009, the Federal Register published proposed guidance from the Federal Reserve for structuring incentive compensation arrangements at banking organizations.

There are several notable aspects of the proposed guidance. First, the Federal Reserve expects all banking organizations, not just entities participating in the Troubled Asset Relief Program, to review their incentive compensation arrangements in light of the guidance. Second, the guidance sets forth principles that banking organizations should follow and implement as part of their incentive compensation arrangements, but does not establish pay caps or other specific formulas for calculating incentive compensation. Third, the principles in the guidance apply to incentive compensation arrangements for executives, employees, and groups of employees who may expose the organization to material amounts of risk. They are not limited to compensation arrangements for executive officers or other highly compensated employees.

Principles of a Sound Incentive Compensation System

The Federal Reserve guidance is centered on three (3) main principles that should be followed when designing a sound incentive compensation system.

Principle #1: Balanced Risk-Taking Incentives

  • Incentive compensation arrangements should account for risks associated with employee’s activities when developing incentive compensation arrangements.

An incentive compensation arrangement should balance the risk and the reward associated with activities undertaken by the employee. This balance is achieved when incentive compensation paid to an employee accounts for the risks and the financial benefits associated with the employee’s activities. This may require banking organizations to reduce the amount of incentive compensation payable to an employee to account for the risks.

Example: Two employees generate the same amount of short-term profit, but the activities of one employee result in greater risk to the banking organization. Under a balanced incentive compensation arrangement, the employee whose activities result in a greater risk to the banking organization should receive less than the employee whose activities did not result in a greater risk to the banking organization.

  • Employees should understand how risk and risk outcomes are accounted for in their incentive compensation arrangements.

Banking organizations should communicate clearly to employees how an incentive compensation arrangement will account for risk and risk outcomes. The communication should include examples and should be tailored to the employees.
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Email This Content Email This Content Posted in BHC Regulations, Bank Regulations. Tagged with , . By Jennifer Faucett - Monday, December 14, 2009

Summary of New UK Tax on Bank Bonuses

Our London office just published an alert on the United Kingdom’s new 50% Bank Payroll Tax.  While not directly relevant for most U.S. banks (although it does apply to U.S. banks with U.K offices), it does serve as a strong reminder of the international focus on bank compensation.  We understand that France has announced that it intends to introduce a similar tax.

The U.K. Government announced on December 9, 2009, that the award of bonuses to bank employees will render the bank liable to a new “bank payroll tax” through April 5, 2010.   The amount of the tax will be equal to 50% of the amount by which the bonus (or aggregate bonuses) awarded to the particular employee, in that period, exceeds £25,000.  The tax referable to all such awards will be payable in one lump sum on 31 August 2010.  The Government has however reserved the right to extend the period of the charge, and keep the tax in place until certain regulatory changes affecting banks have come into force.

Email This Content Email This Content Posted in Uncategorized. Tagged with , , . By Rob Klingler - Thursday, December 10, 2009

OCC Reviewing TARP Recipients for Compliance with TARP Requirements

We have recently become aware that the OCC is reviewing national bank TARP recipients for their compliance with TARP requirements as part of the formal examination process.  As of part of the examination, the OCC is requesting to review certain documents, policies, and other information related to areas impacted by the TARP regulations.  In particular, the OCC will review a TARP recipient’s Luxury Expenditure Policy, as well as other compensation-related information.

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Email This Content Email This Content Posted in TARP Capital. Tagged with , , . By Dustin Hall - Thursday, September 24, 2009

SIGTARP Summarizes Results and Posts Individual Responses

On August 19, 2009, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) published its latest Audit Report, titled “Despite Evolving Rules on Executive Compensation, SIGTARP Survey Provides Insights on Compliance.” The Report summarizes the results of SIGTARP’s survey of the first 364 TARP CPP recipients, focusing on their executive compensation responses. (SIGTARP previously published its Audit Report on the responses related to the use of TARP funds.)

In the aggregate, the responses are not particularly insightful.  As noted in the Report’s conclusion:

Since EESA was enacted on October 3, 2008, the legislation and implementing guidance on executive compensation for TARP recipients have been in flux.  Nevertheless, most CPP recipients report that they have made a concerted effort to comply with executive compensation limitations.  Moreover, many institutions reported that they intend to comply with the additional restrictions on executive compensation enacted under ARRA.  Nonetheless, some recipients voiced concerns about the new restrictions; in particular, they noted a need for further Treasury guidance or regulations to implement ARRA executive compensation limits.”

However, in addition to the Audit Report itself, SIGTARP has published redacted copies of all of the SIGTARP survey responses.  Responses are listed both alphabetically, and by state.

Email This Content Email This Content Posted in TARP Capital. Tagged with , , . By Rob Klingler - Tuesday, September 8, 2009

Initial Luxury Expenditures Policies Due Soon

The deadline for TARP CPP recipients who received capital infusions prior to June 15, 2009 are required to have adopted an Excessive or Luxury Expenditures Policy by Monday, September 14, 2009.  In addition to adopting such a policy, TARP CPP recipients are required to submit the policy to Treasury and their primary federal banking regulator, and post the policy on their website.  (Subsequent TARP CPP recipients are required to adopt and post a policy within 90 days after the completion of their capital infusion.)

We have collected a list of posted Excessive or Luxury Expenditure Policies.  This list is complied for informational purposes only to offer examples, and is not intended to be complete list of posted policies.  In addition, we may not identify when a bank has filed a revised policy.  Inclusion (or exclusion) from the list does not represent a recommendation of any policy.  Clients of Bryan Cave should contact us to further discuss an appropriate Excessive or  Luxury Expenditures Policy.

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Email This Content Email This Content Posted in TARP Capital. Tagged with , , . By Rob Klingler - Tuesday, September 1, 2009

Luxury Expenditures Policies

This list of sample Excessive or Luxury Expenditures Policies is complied for informational purposes only to offer examples, and is not intended to be complete list of posted policies.  In addition, we may not identify when a bank has filed a revised policy.  Inclusion (or exclusion) from the list does not represent a recommendation of any policy.  Clients of Bryan Cave should contact us to further discuss an appropriate Excessive or Luxury Expenditures Policy.

The following list identifies bank or bank holding company name, state, amount of TARP CPP funds received, and whether they are a public or private company.  We have also attempted to identify policies that appear to be based on the same model, and indicated accordingly.

As a reminder, under the Treasury’s Interim Final Regulations, an Excessive or Luxury Expenditures Policy must:

  1. address four categories of expenditures: entertainment or events; office and facility renovations; aviation or other transportation services; and other similar items, activities, or events;
  2. be reasonably designed to eliminate excessive and luxury expenditures;
  3. identify the types or categories of expenditures which are prohibited;
  4. identify the types or categories of expenditures for which prior approval is required;
  5. provide reasonable approval procedures;
  6. require principal executive and financial officers to certify that such approval procedures were followed;
  7. require the prompt internal reporting of violations to an appropriate person; and
  8. mandate accountability for adherence to the policy.
Email This Content Email This Content Posted in Uncategorized. Tagged with , , . By Rob Klingler - Tuesday, September 1, 2009

Bryan Cave Submits Comment Letter on TARP Interim Final Rules

On August 14, 2009, Bryan Cave LLP submitted a comment letter on the Treasury Department’s Interim Final Rule on TARP Standards for Compensation and Corporate Governance.

In addition to several technical revisions, we have recommended that Treasury:

  • permit TARP recipients to implement new commission compensation programs;
  • treat single-trigger change in control payments as retention awards as opposed to golden parachute payments;
  • add a $100,000 floor for consideration of an employee as a “most highly compensated employee;”
  • permit smaller reporting companies to use the SEC’s smaller reporting company rules for determining their senior executive officers;
  • modify its restrictions on tax gross-up payments;
  • clarify that the say on pay provisions do not apply to private companies; and
  • either clarify or eliminate the 162(m)(5) requirement.

The comment letter is currently being processed by the Treasury Department before being added to the public docket for the regulation, but you can read the complete comment letter here.

Email This Content Email This Content Posted in Commentary, TARP Capital. Tagged with , , . By Rob Klingler - Friday, August 14, 2009

SEC Issues Proposed Rule Implementing TARP Say on Pay

On July 1, 2009, the SEC proposed a rule to implement the “Say-on-Pay” provisions contained in the TARP executive compensation restrictions.

The proposal would add a new Exchange Act Rule 14a-20, which would require TARP recipient to provide a separate shareholder vote to approve the compensation of their executives, as disclosed under Item 402 of Regulation S-K, in their proxy solicitations for an annual meeting at which directors are to be elected.  In addition, a TARP recipient would be required to explain the general effect of the vote, such as whether the vote is non-binding.

The SEC is not dictating the specific language, form of resolution, or proxy disclosure that a TARP recipient must use to provide shareholders with a “Say-on-Pay.”  However, footnote 14 to the Proposing Release contains an important caveat:

“However, as stated in Section 111(e)(1) of the EESA, the vote must be to approve “the compensation of executives, as disclosed pursuant to the compensation disclosure rules of the Commission (which disclosure shall include the compensation discussion and analysis, the compensation tables, and any related material).” We believe that a vote to approve a proposal on a different subject matter, such as a vote to approve only compensation policies and procedures, would not satisfy the requirements of Section 111(e)(1) of the EESA or proposed Rule 14a-20.”

The proposed rule also (i) continues to require that TARP recipients submit a preliminary proxy statement for potential SEC review; and (ii) confirms that TARP recipients that qualify as smaller reporting companies under the SEC disclosure framework may rely on the smaller reporting company disclosure requirements, and are therefore not required to provide a Compensation Discussion & Analysis.

Email This Content Email This Content Posted in TARP Capital. Tagged with , , . By Rob Klingler - Monday, July 6, 2009