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					 The Special Master for TARP Executive Compensation Concludes the Review of Prior Payments

                                         Friday, July 23, 2010

Today, the Special Master for TARP Executive Compensation, Kenneth R. Feinberg, announced the
conclusion of his review of executive pay in late 2008 and early 2009. The Special Master looked at
payments that taxpayer-assisted firms made to “Top 25” executives prior to February 17, 2009, when the
Recovery Act introduced additional compensation and corporate governance standards for TARP
recipients, and directed a review of their executive pay before that date.



                            The Special Master’s review announced today:

    1. Completes Recovery Act mandate to review executive pay before tightening of standards
          Covered the 419 firms that received taxpayer assistance prior to February 17, 2009
          Payments from TARP recipients to “Top 25” executives after taxpayer funds provided
          Special Master directed to “seek to negotiate” a reimbursement to the government for a
          payment determined to be “contrary to the public interest”
          Statutory authority to review payments, but no authority to require reimbursement

    2. Focused on highly compensated employees who received the type of payments later
       restricted by the Recovery Act and Treasury regulations
           Required detailed submissions on executives who earn more than $500,000 per year, and
           company certifications for those who earn less
           240 companies had no executives over the threshold; 116 had five or fewer
           Payments limited by subsequent standards: cash bonuses, retention awards, stock grants,
           golden parachutes and tax gross-ups
           Of the $2.3 billion of payments analyzed, $1.7 billion in these categories

    3. Did not determine that payments were contrary to the “public interest” requiring monetary
       reimbursement
           Rules at the time allowed these kinds of payments
           Payments largely from firms that have repaid the taxpayers

    4. Proposes firms adopt policies that provide compensation committees with special
       restructuring rights:
           Compensation committee would have authority to restructure, reduce or cancel payments
           to executives—and not be bound by “guarantees”
           Reaffirms important principles in the Wall Street Reform law and banking regulators’
           recent guidance on incentive compensation
           Proposal made directly to 17 firms that paid $1.6 billion of the $1.7 billion (92%)
           Entirely voluntary proposal—up to companies to adopt




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1. Completes Recovery Act mandate to review executive pay before tightening of standards:
   The Special Master’s review completed a requirement in the Recovery Act to examine payments
   made to executives between the date a firm received its initial TARP funding and February 17, 2009,
   when the Recovery Act introduced tighter standards on compensation and corporate governance.
        Covered the 419 firms that received taxpayer assistance prior to February 17, 2009: All firms
        that were assisted by taxpayers prior to enactment of the Recovery Act were subject to the review
        and responded to the Special Master’s request for information on their executive pay.
        Payments from TARP recipients to “Top 25” executives after taxpayer funds provided: The
        review covered firms’ “Top 25” executives — senior executive officers and twenty additional
        most-highly compensated employees. For firms that had different “Top 25” groups in 2008 and
        2009, firms were required to submit information on both groups of executives.
        Special Master directed to “seek to negotiate” a reimbursement to the government for a
        payment determined to be “contrary to the public interest”: If a payment was determined to be
        inconsistent with the purposes of the Emergency Economic Stabilization Act of 2008, or TARP,
        or otherwise contrary to the public interest, the statute required the Special Master to seek to
        negotiate with the company and the employee for a reimbursements.
        Recovery Act provided authority to review, but not to force repayments: Although authority to
        conduct the review and obtain compensation information was provided under the statute and
        regulations, the Special Master had no authority to force reimbursements from firms or
        executives, or require any other remedy.
2. Focused on highly compensated employees who received the type of payments later restricted by
   the Recovery Act and Treasury regulations: Treasury regulations provided the Special Master the
   discretion to tailor the review, using factors like the overall compensation of the employee and the
   type of payments being made.
        Required detailed submissions on executives who earn more than $500,000 per year, and
        company certifications for those who earn less: The Special Master concluded that payments to
        executives earning $500,000 or less per year would be highly unlikely to be inconsistent with the
        public interest. As a result, rather than require detailed submissions on every “Top 25” executive,
        the Special Master allowed firms to certify that a particular executive earns $500,000 per year or
        less.
        240 companies had no executives over the threshold; 116 had five or fewer: Most of the 419
        firms certified that some of their “Top 25” executives $500,000 or less per year. For 240
        institutions, certifications covered their entire “Top 25” group; for 116 others, detailed
        submissions were required for less than five executives.
        Payments limited by subsequent rules: cash bonuses, retention awards, stock grants, golden
        parachutes and tax gross-ups: The Special Master examined the extent of payments that,
        although legal and permitted under rules at the time, were later restricted by standards established
        under the Recovery Act and Treasury regulations.
        Of the $2.3 billion of payments analyzed, $1.7 billion in these categories: Of the payments
        reviewed by the Special Master, approximately 74%, fell into these categories. The remainder of
        payments fell into categories such as base pay, delivery of stock, and course contributions and
        distributions of deferred compensation.




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3. Does not determine that payments were “contrary to the public interest”: The Special Master did
   not determine that any payments were “inconsistent with the purposes of [Section 111 of the
   Emergency Economic Stabilization Act of 2008] or the TARP or were otherwise contrary to the
   public interest.” The Special Master had no authority whatsoever to force repayments from
   employees or companies.
       Rules at the time allowed these kinds of payments: Although the Recovery Act and Treasury
       rules later imposed much stricter limits on pay at TARP recipients, at the time the reviewed
       payments were made, compensation such as cash bonuses and retention awards were permitted by
       the rules in place at the time.
        Payments largely from firms that have reimbursed taxpayers: Eleven of the seventeen firms
       the Special Master has contacted regarding his proposal have fully reimbursed the taxpayers. Of
       the $1.7 billion in payments identified by the Special Master, more than 90% were made by firms
       that fully repaid, or were taken into consideration in the Special Master’s determinations
       regarding “exceptional assistance recipients.”
4. Proposes firms adopt policies that provide compensation committees with special restructuring
   rights: The Special Master is proposing that firms adopt a prospective compensation policy.
   Although the proposal is being made at the conclusion of the review, because the Special Master has
   not reached a determination that requires him to seek any reimbursement, the policy is not proposed
   as a remedy or settlement of a negotiation regarding any payments.
       In a crisis situation, a firm would have authority to restructure, reduce or cancel payments to
       executives—and not be bound by “guarantees”: Under the proposal, if the company’s board of
       directors has identified that the firm is in a crisis situation, the compensation committee would
       have the authority to restructure, reduce or cancel pending payments to executives—and this
       authority would supersede any rights and entitlements executives have in normal circumstances.
        Reaffirms important principles in the Wall Street Reform law and banking regulators’
       guidance on incentive compensation: The proposed policy would give compensation committees
       flexibility and authority to set and adjust appropriate compensation at a crucial moment,
       consistent with provisions in the new regulatory reform law, which strengthens committee
       independence, and with banking regulators’ principles for sound incentive compensation
       practices, which call for effective oversight by directors and an appropriate balance of risk and
       reward.
       Special Master proposed to 17 firms: The Special Master made the proposal directly to 17 firms.
       The firms were selected in consideration of the overall amounts they paid of bonuses, new stock
       grants, golden parachutes and other types of compensation later subjected to the tighter standards
       established by the Recovery Act and subsequent Treasury rules. Of the $1.7 billion of these types
       of payments identified by the Special Master, these firms, in the aggregate, paid $1.6 billion.
       Entirely voluntary proposal: The entirely voluntary proposal is recommended by the Special
       Master for wide adoption. A set of principles to guide a company adopting such a policy will be
       provided. The principles provide flexibility for each firm, working with its regulator, to adopt a
       policy tailored to its particular business and circumstances.




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