Executive Compensation at a Turning Point

Executive Compensation at a Turning Point - 12-17-2009

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Executive Compensation at a Turning Point
Stephanie Soondar, Allen Major and Candace Hines

Law.com. December 17, 2009
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EXCERPT: Executive compensation was once a matter of vanilla corporate governance. Each industry practiced standards among peer companies, and the details of how an employee was compensated was newsworthy only as a matter of competitive comparison. The ongoing economic crisis, however, has transformed the issue into an outlet for public catharsis, the subject of political rhetoric and a bogeyman for frailties in the economic system. Draft legislation proposing new ways of re-regulating the matter offers powerful incentives for companies to alter their internal compensation structures. Legislative consensus aligns pay with performance, tying compensation to the long-term stability of the company and the larger financial system. This article will explore some of that re-regulation, as well as some of the current litigation over executive compensation. […] As the United States economy spiraled into crisis in late 2008, Congress authorized the $700 billion Troubled Asset Relief Program, whose funds the Treasury Department largely used to buy shares in troubled banks. The American Recovery and Reinvestment Act of 2009 (Pub. L. No. 111-5) strengthened the executive compensation restrictions applicable to all recipients of TARP funds. In June 2009, Treasury named Kenneth Feinberg as special master for TARP executive compensation. For TARP recipients receiving "exceptional assistance" -- which, at the time, included AIG, Citigroup, Bank of America, Chrysler, GM, GMAC and Chrysler Financial -- the special master must determine whether the compensation to be paid to the 100 most highly-compensated employees at each company may result in payments that are inconsistent with the purposes of TARP or contrary to the public interest (Federal Register, Vol. 74, No. 113, June 15, 2009). In late October 2009, Feinberg announced his pay determinations for the 25 highest-paid employees (including the five most senior executive officers) at the seven firms receiving "exceptional assistance."

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