Outrage over Wall Street bonuses has prompted the Treasury Department to impose a new round of limitations on executive compensation programs at financial institutions taking government funds, according to a survey by Pearl Meyer & Partners.
The new rules are considerably more restrictive than those previously imposed on institutions that have received government funds and are to be applied prospectively. Treasury has indicated its goal is to better align executive compensation at these organizations with shareholder and taxpayer interests by:
• Imposing a $500,000 cap on cash compensation to executives
• Restricting equity compensation to restricted stock tied to repayment of government debt
• Further limiting severance payments
• Expanding clawback requirements for inappropriate incentive payments
• Requiring a Board-approved and disclosed policy on luxury expenditures
The survey finds that it is reasonable for the Treasury to impose limitations on executive compensation at companies receiving substantial funds from taxpayers. The issue is how extensive aid will be and how limitations will be implemented.