Reading the text of the bailout bill voted on this morning, I see that the section on limiting executive compensation is essentially toothless, a sop put in there to appease the public if we are stupid enough to just trust sound bites from members of Congress without actually checking the language of the bill (which can be found, among other places, at http://www.washingtonwatch.com/blog/2008/09/28/bailout-text-tarp-taxpayers-are-really-payin/
Section 111 deals with executive compensation:
SEC. 111. EXECUTIVE COMPENSATION AND CORPORATE GOVERNANCE.
(a) APPLICABILITY.—Any financial institution that sells troubled assets to the Secretary under this Act shall be subject to the executive compensation requirements of subsections (b) and (c) and the provisions under the Internal Revenue Code of 1986, as provided under the amendment by section 302, as applicable.
(b) DIRECT PURCHASES.—
(1) IN GENERAL.—Where the Secretary determines that the purposes of this Act are best met through direct purchases of troubled assets from an individual financial institution where no bidding process or market prices are available, and the Secretary receives a meaningful equity or debt position in the financial institution as a result of the transaction, the Secretary shall require that the financial institution meet appropriate standards for executive compensation and corporate governance. The standards required under this subsection shall be effective for the duration of the period that the Secretary holds an equity or debt position in the financial institution.
(2) CRITERIA.—The standards required under this subsection shall include—
(A) limits on compensation that exclude incentives for executive officers of a financial institution to take unnecessary and excessive risks that threaten the value of the financial institution during the period that the Secretary holds an equity or debt position in the financial institution;
(B) a provision for the recovery by the financial institution of any bonus or incentive compensation paid to a senior executive officer based on statements of earnings, gains, or other criteria that are later proven to be materially inaccurate; and
(C) a prohibition on the financial institution making any golden parachute payment to its senior executive officer during the period that the Secretary holds an equity or debt position in the financial institution.
(3) DEFINITION.—For purposes of this section, the term “senior executive officer” means an individual who is one of the top 5 executives of a public company, whose compensated is required to be disclosed pursuant to the Securities Exchange Act of 1934, and any regulations issued thereunder, and non-public company counterparts.
(c) AUCTION PURCHASES.—Where the Secretary determines that the purposes of this Act are best met through auction purchases of troubled assets, and only where such purchases per financial institution, in the aggregate exceed $300,000,000 (including direct purchases), the Secretary shall prohibit, for such financial institution, any new employment contract with a senior executive officer that provides a golden parachute in the event of an involuntary termination, bankruptcy filing, insolvency, or receivership. The Secretary shall issue guidance to carry out this paragraph not later than 2 months after the date of enactment of this Act, and such guidance shall be effective upon issuance.
(d) SUNSET.—The provisions of subsection (c) shall apply only to arrangements entered into during the period during which the authorities under section 101(a) are in effect, as determined under section 120.
Perhaps you noticed the vague language (no dollar amount mentioned) and the fact that it applies only to the top 5 executives. Don’t you like the section 2(A) language: “exclude incentives for executive officers of a financial institution to take unnecessary and excessive risks”.
Congress has tried before to limit executive pay, with little or no success. For some of that history, see Attempts to limit CEO pay have yet to succeed. and Do Caps on Executive Compensation Really Work?
In fact, any CEO whose lawyers can’t get around this toothless provision ought to be fired. Looks to me like the
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