§5221 — Title 12 Banks and Banking | U.S. Code

Summary

Requires companies that got TARP money to follow strict pay and governance rules while they still owe TARP funds and to follow section 162(m)(5) of the tax code when it applies. A TARP recipient is a company that received Troubled Asset Relief Program aid. A senior executive officer is one of the top five paid executives whose pay must be reported. A golden parachute payment is pay for leaving the company, except for earned pay or benefits. The Commission means the Securities and Exchange Commission. The “outstanding” period does not count times when the government only holds warrants. TARP recipients must limit pay that encourages risky behavior, set up a clawback for bonuses or incentives paid from materially wrong financial results covering senior execs and the next 20 highest-paid employees, and ban golden parachutes for senior execs and the next 5 highest-paid employees while obligations are outstanding. Most bonuses and retention awards are banned during that period, though long-term restricted stock is allowed if it does not fully vest while obligations remain, is no more than 1/3 of annual pay, and meets any other Secretary rules. The ban’s reach depends on how much TARP money the firm got: under $25,000,000 it covers only the single highest-paid employee; $25,000,000–$249,999,999 covers at least the top 5; $250,000,000–$499,999,999 covers senior execs plus at least the next 10; $500,000,000 or more covers senior execs plus at least the next 20. Bonuses required by written contracts dated on or before February 11, 2009, are not barred. CEOs and CFOs must certify compliance to the SEC if public, or to the Secretary if not. Each company must have a Board Compensation Committee of independent directors that meets at least twice a year (small nonpublic firms with $25,000,000 or less of TARP aid may have the full board perform this role). Boards must also have a policy against excessive or luxury spending. Shareholders must get a separate, non-binding vote on executive pay, with final SEC rules due within 1 year after February 17, 2009. The Secretary will review pay given before February 17, 2009 to senior execs and the next 20 highest-paid employees and may seek repayments. Companies may repay TARP aid without delay, and the Secretary may sell associated warrants at market price when repayment happens. The Secretary must write rules to make these requirements work.

Title 12, §5221

Banks and Banking — Source: USLM XML via OLRC

(a)For purposes of this section, the following definitions shall apply:

(1)The term “senior executive officer” means an individual who is 1 of the top 5 most highly paid executives of a public company, whose compensation is required to be disclosed pursuant to the Securities Exchange Act of 1934 [15 U.S.C. 78a et seq.], and any regulations issued thereunder, and non-public company counterparts.

(2)The term “golden parachute payment” means any payment to a senior executive officer for departure from a company for any reason, except for payments for services performed or benefits accrued.

(3)The term “TARP recipient” means any entity that has received or will receive financial assistance under the financial assistance provided under the TARP.

(4)The term “Commission” means the Securities and Exchange Commission.

(5)For purposes of this section, the period in which any obligation arising from financial assistance provided under the TARP remains outstanding does not include any period during which the Federal Government only holds warrants to purchase common stock of the TARP recipient.

(b)(1)During the period in which any obligation arising from financial assistance provided under the TARP remains outstanding, each TARP recipient shall be subject to—

(A)the standards established by the Secretary under this section; and

(B)the provisions of section 162(m)(5) of title 26, as applicable.

(2)The Secretary shall require each TARP recipient to meet appropriate standards for executive compensation and corporate governance.

(3)The standards established under paragraph (2) shall include the following:

(A)Limits on compensation that exclude incentives for senior executive officers of the TARP recipient to take unnecessary and excessive risks that threaten the value of such recipient during the period in which any obligation arising from financial assistance provided under the TARP remains outstanding.

(B)A provision for the recovery by such TARP recipient of any bonus, retention award, or incentive compensation paid to a senior executive officer and any of the next 20 most highly-compensated employees of the TARP recipient based on statements of earnings, revenues, gains, or other criteria that are later found to be materially inaccurate.

(C)A prohibition on such TARP recipient making any golden parachute payment to a senior executive officer or any of the next 5 most highly-compensated employees of the TARP recipient during the period in which any obligation arising from financial assistance provided under the TARP remains outstanding.

(D)(i)A prohibition on such TARP recipient paying or accruing any bonus, retention award, or incentive compensation during the period in which any obligation arising from financial assistance provided under the TARP remains outstanding, except that any prohibition developed under this paragraph shall not apply to the payment of long-term restricted stock by such TARP recipient, provided that such long-term restricted stock—

(I)does not fully vest during the period in which any obligation arising from financial assistance provided to that TARP recipient remains outstanding;

(II)has a value in an amount that is not greater than ⅓ of the total amount of annual compensation of the employee receiving the stock; and

(III)is subject to such other terms and conditions as the Secretary may determine is 11 So in original. Probably should be “are”. in the public interest.

(ii)The prohibition required under clause (i) shall apply as follows:

(I)For any financial institution that received financial assistance provided under the TARP equal to less than $25,000,000, the prohibition shall apply only to the most highly compensated employee of the financial institution.

(II)For any financial institution that received financial assistance provided under the TARP equal to at least $25,000,000, but less than $250,000,000, the prohibition shall apply to at least the 5 most highly-compensated employees of the financial institution, or such higher number as the Secretary may determine is in the public interest with respect to any TARP recipient.

(III)For any financial institution that received financial assistance provided under the TARP equal to at least $250,000,000, but less than $500,000,000, the prohibition shall apply to the senior executive officers and at least the 10 next most highly-compensated employees, or such higher number as the Secretary may determine is in the public interest with respect to any TARP recipient.

(IV)For any financial institution that received financial assistance provided under the TARP equal to $500,000,000 or more, the prohibition shall apply to the senior executive officers and at least the 20 next most highly-compensated employees, or such higher number as the Secretary may determine is in the public interest with respect to any TARP recipient.

(iii)The prohibition required under clause (i) shall not be construed to prohibit any bonus payment required to be paid pursuant to a written employment contract executed on or before February 11, 2009, as such valid employment contracts are determined by the Secretary or the designee of the Secretary.

(E)A prohibition on any compensation plan that would encourage manipulation of the reported earnings of such TARP recipient to enhance the compensation of any of its employees.

(F)A requirement for the establishment of a Board Compensation Committee that meets the requirements of subsection (c).

(4)The chief executive officer and chief financial officer (or the equivalents thereof) of each TARP recipient shall provide a written certification of compliance by the TARP recipient with the requirements of this section—

(A)in the case of a TARP recipient, the securities of which are publicly traded, to the Securities and Exchange Commission, together with annual filings required under the securities laws; and

(B)in the case of a TARP recipient that is not a publicly traded company, to the Secretary.

(c)(1)Each TARP recipient shall establish a Board Compensation Committee, comprised entirely of independent directors, for the purpose of reviewing employee compensation plans.

(2)The Board Compensation Committee of each TARP recipient shall meet at least semiannually to discuss and evaluate employee compensation plans in light of an assessment of any risk posed to the TARP recipient from such plans.

(3)In the case of any TARP recipient, the common or preferred stock of which is not registered pursuant to the Securities Exchange Act of 1934 [15 U.S.C. 78a et seq.], and that has received $25,000,000 or less of TARP assistance, the duties of the Board Compensation Committee under this subsection shall be carried out by the board of directors of such TARP recipient.

(d)The board of directors of any TARP recipient shall have in place a company-wide policy regarding excessive or luxury expenditures, as identified by the Secretary, which may include excessive expenditures on—

(1)entertainment or events;

(2)office and facility renovations;

(3)aviation or other transportation services; or

(4)other activities or events that are not reasonable expenditures for staff development, reasonable performance incentives, or other similar measures conducted in the normal course of the business operations of the TARP recipient.

(e)(1)Any proxy or consent or authorization for an annual or other meeting of the shareholders of any TARP recipient during the period in which any obligation arising from financial assistance provided under the TARP remains outstanding shall permit a separate shareholder vote 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).

(2)A shareholder vote described in paragraph (1) shall not be binding on the board of directors of a TARP recipient, and may not be construed as overruling a decision by such board, nor to create or imply any additional fiduciary duty by such board, nor shall such vote be construed to restrict or limit the ability of shareholders to make proposals for inclusion in proxy materials related to executive compensation.

(3)Not later than 1 year after February 17, 2009, the Commission shall issue any final rules and regulations required by this subsection.

(f)(1)The Secretary shall review bonuses, retention awards, and other compensation paid to the senior executive officers and the next 20 most highly-compensated employees of each entity receiving TARP assistance before February 17, 2009, to determine whether any such payments were inconsistent with the purposes of this section or the TARP or were otherwise contrary to the public interest.

(2)If the Secretary makes a determination described in paragraph (1), the Secretary shall seek to negotiate with the TARP recipient and the subject employee for appropriate reimbursements to the Federal Government with respect to compensation or bonuses.

(g)Subject to consultation with the appropriate Federal banking agency (as that term is defined in section 1813 of this title), if any, the Secretary shall permit a TARP recipient to repay any assistance previously provided under the TARP to such financial institution, without regard to whether the financial institution has replaced such funds from any other source or to any waiting period, and when such assistance is repaid, the Secretary, at the market price, may liquidate warrants associated with such assistance.

(h)The Secretary shall promulgate regulations to implement this section.

Notes & Related Subsidiaries

Editorial Notes

References in Text

The Securities Exchange Act of 1934, referred to in subsecs. (a)(1) and (c)(3), is act June 6, 1934, ch. 404, 48 Stat. 881, which is classified principally to chapter 2B (§ 78a et seq.) of Title 15, Commerce and Trade. For complete classification of this Act to the Code, see section 78a of Title 15 and Tables.

Amendments

2009—Pub. L. 111–5 amended section generally. Prior to amendment, section consisted of subsecs. (a) to (d) relating to applicability of requirements, direct purchases of troubled assets, auction purchases of troubled assets, and sunset of provisions, respectively. Subsec. (g). Pub. L. 111–22 substituted “, at the market price, may liquidate warrants associated with such assistance” for “shall liquidate warrants associated with such assistance at the current market price”.

§5221 Executive compensation and corporate governance