Corporate Governance

White House and Treasury Department Release New Executive Compensation Guidelines for Companies Receiving Public Funding

By Carol Straw

Last week President Obama and the Treasury Department issued a new set of guidelines on executive pay for financial institutions that are receiving governmental assistance in the current financial crisis. The guidelines aim to ensure that public funds are directed only toward the public interest in strengthening the economy by stabilizing the financial system and not toward inappropriate private gain. They are expected to be formalized through an executive order from the President. This article highlights executive compensation and ?say on pay? provisions in the guidelines.

For companies receiving exceptional financial recovery assistance, the guidelines provide that executive compensation be 1) limited to $500K in total annual compensation other than restricted stock, 2) fully disclosed and subject to a ?Say on Pay? shareholder resolution, and 3) subject to clawback bonuses for top executives engaging in deceptive conduct.

For financial institutions participating in generally available capital access programs, the guidelines provide that executive compensation be 1) limited to $500K in total annual compensation plus restricted stock unless waived with full public disclosure and shareholder vote and 2) subject to clawback bonuses for top executives engaging in deceptive conduct.

Even beyond companies receiving financial recovery assistance, the guidelines also provide for long term regulatory reforms. The alignment of executive compensation with proper risk management and long term value and growth is sought. Specifically, owners of financial institutions ? the shareholders ? should have a non-binding resolution on both the levels of  executive compensation as well as how the structure of compensation incentives help to promote risk management and long-term value creation for the financial entity and the economy as a whole.

An ongoing dialogue among government, financial, public and other constituents affected by this financial crisis is planned. To that end, Tim Geithner, the Treasury Secretary will host a conference with shareholder advocates, major public pension and institutional investor leaders, policy makers, executives, academics, and others on executive pay reform at financial institutions. The Treasury will seek testimony, comment, and white papers on model executive pay initiatives in the cause of establishing best practices and guidelines on executive compensation arrangements for financial institutions.

See White House Press Release dated 2/4/2009: Treasury Announces New Restrictions on Executive Compensation

Full post as published by PomTalk on February 17, 2009 (boomark / email).