The New Executive Compensation Guidelines
Treasury’s TARP guidelines and guidance for regulatory reform
On June 10, 2009, the Treasury Department issued two pieces of guidance on executive compensation. The first, issued in the form of an interim final rule, clarifies and expands the compensation restrictions detailed in the February 17th American Recovery and Reinvestment Act of 2009 (ARRA). Among the additional compensation requirements was the appointment of a “Pay Czar” to oversee compensation at firms receiving “exceptional financial assistance” and disclosures of perquisites over $25,000.
The second item was a press release from Treasury Secretary Geithner. The press release outlined five broad-based principles for compensation practices and reiterated support for legislation requiring universal adoption of an annual non-binding shareholder advisory vote on executive compensation, or “Say-on-Pay”, and more stringent independence requirements for compensation committees. Notably, the Treasury Secretary made it clear that the Administration was not capping pay or “setting forth precise prescriptions for how [all US publicly-traded] companies should set compensation”, but instead was working to develop standards for executive compensation practices going forward.
On June 17, 2009, the Administration issued a whitepaper on Regulatory Reform. The whitepaper proposed significant changes in the regulatory framework for financial institutions and reiterated Treasury Secretary Geithner’s broad-based compensation principles and support for Say-on-Pay legislation and revised independence standards for compensation committees.
Taken together, these announcements illustrate that the Administration intends to have much more influence over the executive compensation process for all companies, not just companies in financial services or companies participating in TARP.