Legislation Approved by Committee Prohibiting Bonus Payments to TARP Recipients

The House Financial Services Committee approved legislation which would prohibit the payment of bonus money by companies which have received funds directly from the TARP program and the Housing and Economic Recovery Act until these investments are repaid.

The bill, H.R. 1664, the Grayson-Himes Pay for Performance Act of 2009, prohibits any compensation payments that are unreasonable or excessive, restricts all non-performance based bonuses, and effectively repeals a controversial provision in the American Recovery and Reinvestment Act. The Committee passed the legislation by a vote of 38-22.

The bill is co-sponsored by Congressman Alan Grayson (D-FL) and Congressman Jim Himes (D-CT).

The bill adds new compensation/bonus restrictions to the Emergency Economic Stabilization Act for financial institutions that receive or have received a direct capital investment by the Treasury Department under the Troubled Asset Relief Program or the Housing and Economic Recovery Act (which covers Fannie Mae, Freddie Mac and the Federal Home Loan Banks). While such a capital investment is outstanding, and regardless of when a compensation payment arrangement was entered into, recipients of a direct capital investment from the Treasury would be prohibited from:

• Paying any executive or employee any compensation that is “unreasonable or excessive,” as defined in standards established by the Treasury Secretary.

• Paying any bonus or other supplemental payment that is not directly based on performance-based standards set by the Treasury Secretary.

• The bill would require the Treasury Secretary to consult with the Chairperson of the Congressional Oversight Panel and obtain approval of the agencies that are members of the Federal Financial Institutions Examination Council before defining unreasonable or excessive compensation and establishing performance-based measures.

• The bill also would provide that the restrictions on bonuses of highly-compensated employees, adopted in the American Recovery and Reinvestment Act, would apply while a direct capital investment under TARP remains outstanding, regardless of when the arrangement to pay such bonus was entered into. This provision is intended to effectively repeal a provision that currently exempts from the prohibition’s coverage bonuses that are due under employment contracts entered on or before February 11, 2009.

• Finally, the bill would require a financial institution that is subject to the new compensation requirements to submit an annual report to the Treasury Secretary stating how many executives and employees received or will receive total compensation above specified dollar amounts during the fiscal year.

The legislation is now being forwarded to the full House for consideration.

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