February 12, 2009

DODD STATEMENT ON EXECUTIVE COMPENSATION AMENDMENT IN ECONOMIC RECOVERY LEGISLATION

Washington, DC – Senator Chris Dodd, Chairman of the Senate Committee on Banking, Housing and Urban Affairs, today released the following statement on an amendment he authored to curb big bonuses for executives at firms receiving funds from the Troubled Asset Relief Program (TARP):
 
“I’m delighted that my amendment to impose tough new limits on huge bonuses for executives working in firms that receive taxpayer funds will be included in the final economic recovery bill.  The decisions of certain Wall Street executives to enrich themselves at the expense of taxpayers have seriously undermined public confidence in efforts to stabilize the economy.  American taxpayers deserve better. With vigorous oversight by the Treasury Department and by Congress, these tough new rules will help ensure that taxpayer dollars no longer effectively subsidize lavish Wall Street bonuses.”
 
A summary of the amendment is below:
 
The Dodd amendment applies to all TARP recipients that have outstanding obligations under the law, such as a loan to be paid or preferred stock to be redeemed. 
 
I.       The amendment puts an end to compensation policies unfair to American taxpayers by banning:
 
  • Compensation incentives for senior executive officers “to take unnecessary and excessive risks that threaten the value” of the company.
 
  • “Golden parachutes” for senior executive officers or the next 5 most highly-compensated employees.
 
·         Compensation plans that would encourage manipulation of the company’s reported earnings to enhance an employee’s compensation.
 
II.                The amendment also cracks down on:
 
·         Bonuses, retention awards and incentive compensation.  For institutions that received assistance totaling less than $25M, the bonus restriction applies to the highest compensated employee (top 1); $25M-$250M, applies to the top 5 employees; $250M-$500M, applies to the senior executive officers and the next top 10 employees; and more than $500M applies to the senior executive officers and the next top 20 employees (or such higher number as the Secretary determines is in the public interest).
 
  • Compensation paid out wrongfully in the past. The Secretary of the Treasury must review past compensation paid to the top 25 employees of TARP recipients and to seek to negotiate for reimbursements if those payments were contrary to the public interest or inconsistent with the purposes of the Act or the TARP.
 
III.             The amendment includes tough new rules for TARP recipients, who must:
 
  • Clawback any bonus, retention award or incentive compensation paid to  senior executive officers or the next 20 most highly-compensated employees based on statements of earnings, revenues or other criteria later found to be materially inaccurate.
 
·         Certify that they are complying with these executive compensation rules.
 
·         Establish a Compensation Committee of the Board established that has all independent directors; the Compensation Committee must meet at least semiannually to evaluate employee compensation plans in light of risk posed to the company.
 
·         Institute a company-wide policy regarding excessive or luxury expenditures, including entertainment or events, office and facility renovations, private jets, etc.
 
·         Institute “Say on Pay” or an annual shareholder vote on approval of executive compensation.
 
 
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