Financial Crisis News Center

Supplemental Executive Compensation Determination Issued Regarding AIG

This story appeared in Bank Digest.

Kenneth R. Feinberg, Special Master for TARP Executive Compensation, has issued a supplemental executive compensation determination regarding a potential new hire by AIG. The proposed compensation structure was determined not to be contrary to the public interest.

Grassley Asks Whether AIG Bonus Contracts Were Signed After Bailout

This story appeared in Bank Digest.

Senate Finance Committee Ranking Member Chuck Grassley, R-Iowa, has asked Treasury Secretary Tim Geithner for information and documents on the timing of bonus contracts for executives at American International Group (AIG). According to Kenneth Feinberg, the Special Master for TARP Executive Compensation, the recently announced bonuses must be paid because the contracts pre-dated the government bailout. Grassley told Geithner that he believes some of the contracts were, in fact, signed after AIG received government money and even after the law creating TARP was passed. “At a minimum, why should Treasury honor contracts executed in September and October, 2008, after AIG began receiving billions in taxpayer support?,” Grassley asked in his letter. The letter also asks for information on the government's efforts to rein in, and possibly recover, some bonus payments.

Committee Members Spar Over GSE Compensation Plans

This story appeared in Bank Digest.

Rep. Spencer Bachus, R-Ala., the Ranking Member of the House Financial Services Committee, commented on assertions made by Committee Chairman Barney Frank, D-Mass., regarding the applicability of H.R. 1664 to community banks. H.R. 1664 would amend the executive compensation provisions of the Emergency Economic Stabilization Act of 2008 to prohibit unreasonable and excessive compensation and compensation not based on performance standards. Bachus noted that “H.R. 1664 would have given government bureaucrats virtually unbridled authority to write compensation rules for all institutions receiving direct capital investments by the government, including community banks across America that received funds under the Capital Purchase Program (5% loans and warrants). It was an overly broad bill that applied to all employees rather than just top executives. While supposedly targeted at compensation practices at large financial institutions like AIG, it unfairly penalized small community banks with responsible compensation arrangements that had nothing to do with the excesses on Wall Street.”

Frank countered Bachus’s assertion in a statement noting that Bachus “incorrectly stated that the bill he voted against, H.R. 1664, would have unfairly penalized small community banks with responsible compensation arrangements that had nothing to do with the excesses on Wall Street.”

Bachus Questions Hearing Motivation

This story appeared in Bank Digest.

Financial Services Committee Ranking Member Spencer Bachus, R-Ala., has sent a letter to Committee Chairman Barney Frank, D-Mass., expressing his disappointment that Acting Director of the Federal Housing Finance Agency Edward DeMarco has not been invited as the Republican witness at Friday's full committee hearing on compensation practices at financial firms. According to Bachus, the December 2009 FHFA announcement of Fannie Mae and Freddie Mac executive compensation for 2010, which includes $6 million each for the Fannie and Freddie CEOs, makes DeMarco's inclusion “critical to understanding the underlying issues that will be addressed.” Bachus stated that the “decision to deny my request to invite DeMarco...raises serious questions about the motivation for the hearing.”

Grassley Questions Severance Package for AIG Executive

This story appeared in Bank Digest.

Senate Finance Committee Ranking Member Chuck Grassley, R-Iowa, has sent a letter to the Troubled Asset Relief Program (TARP) special master for compensation asking him to explain why an AIG executive who resigned is entitled to a multi-million dollar severance agreement. The company received significant TARP money, and the federal special master for compensation is charged with ensuring appropriate compensation for program participants. “The taxpayers are fed up with massive payouts to executives at companies that took taxpayer money,” Grassley said. “The special master for compensation should account for a multi-million dollar severance agreement for this AIG executive.”

House-Senate Oversight Chairs Support Obama Proposed Fee on Large Banks and Securities Firms

This story appeared in Jim Hamilton's World of Securities Regulation.

Senate Banking Committee Chairman Chris Dodd and House Financial Services Chair Barney Frank strongly support the Obama Administration’s proposed Financial Crisis Responsibility Fee that would require the largest and most highly leveraged Wall Street firms to pay back taxpayers for the extraordinary assistance provided so that the TARP program does not add to the deficit. Senator Dodd also said that the committee may also consider additional means to limit executive compensation as part of the financial reform legislation it is working on.

Chairman Frank said that President Obama’s action fully complies with taxpayer protection language of the Economic Emergency Stabilization Act, which requires the President to put forward a plan that recoups from the financial industry an amount equal to the shortfall in order to ensure that the TARP does not add to the deficit or national debt. Mr. Frank said that he is confident that the House will act on the measure soon.

Compensation Hearing Announced by House Financial Services Committee

This story appeared in Bank Digest.

The House Financial Services Committee will hold a hearing on Jan. 22, 2010, to discuss the issue of compensation practices for both financial and non-financial firms. The hearing comes after the House of Representatives successfully passed compensation measures as a part of H.R. 4173, the Wall Street Reform and Consumer Protection Act. Ranking Member Spencer Bachus, R-Ala., responded to the announced hearing by asserting that if the  hearings “seek to examine ways to reduce the risk of excessive compensation in our financial system” they must begin at Fannie Mae and Freddie Mac. According to Bachus, “the CEOs of Fannie Mae and Freddie Mac will make at least $6 million for 2009. The Committee must explore how these compensation arrangements can be justified in light of the companies’ abject failure to meet their stated performance goals, which include ‘being a recognized leader in the housing recovery’ and ‘protecting taxpayers’.”

SEC and Congress Put Spotlight on Executive Compensation Consultants

This story appeared in Jim Hamilton's World of Securities Regulation.

Many companies engage compensation consultants to make recommendations on appropriate executive compensation levels, to design and implement incentive plans, and to provide information on industry and peer group pay practices. The services offered by compensation consultants, however, are often not limited to recommending executive compensation plans or policies. Many compensation consultants are retained by management to provide a broad range of additional services, such as benefits administration, human resources consulting and actuarial services. The fees generated by these additional services may be more significant than the fees earned by the consultants for their executive compensation services. There is regulatory and congressional concern that the extent of the fees and provision of additional services by a compensation consultant may create the risk of a conflict of interest that may call into question the objectivity of the consultant’s advice on executive compensation.

Comments on Incorporating Employee Compensation Into the Risk Assessments

By Gregg D. Killoren, J.D., CCH State Banking Law Reporter, Bank Digest and Individual Retirement Plans Guide.

The Federal Deposit Insurance Corp. will be issuing an Advance Notice of Proposed Rulemaking (ANPR) that asks for comment on whether employee compensation structures that increase a depository institution's risk should be considered in setting the institution's deposit insurance assessment. According to FDIC Chairman Sheila Bair, “A broad consensus of academic studies agrees that poorly designed compensation structures can misalign incentives and induce risk taking.” This can increase risk for the deposit insurance fund and increase losses in the financial system, Bair said. According to the FDIC's notice, the agency is not attempting to impose compensation limits. Instead, it is looking at how to incorporate into the deposit insurance assessment rates the effects of compensation programs that increase risks to the Deposit Insurance Fund.

SEC Amends Proxy Rules to Implement Dodd Amendment Say-on-Pay Mandate for TARP Companies

This story appeared in Jim Hamilton's World of Securities Regulation.

The SEC has amended the federal proxy rules to implement the requirement in Section 111(e)(1) of the Emergency Economic Stabilization Act (EESA) that TARP recipients provide a separate shareholder advisory vote to approve the compensation of executives. Release No. 34-61335. Under the amendments, this separate shareholder vote will be required when TARP recipients solicit proxies during the period in which any obligation arising from financial assistance provided under the TARP remains outstanding, and the solicitation relates to an annual meeting for which proxies will be solicited for the election of directors. The say-on-pay mandate for TARP recipients was added to EESA by the Dodd Amendment to the stimulus legislation.