Billing Code 4810-25-P 

DEPARTMENT OF THE TREASURY 

Domestic Finance 

31 CFR Part 30

TARP CAPITAL PURCHASE PROGRAM 

AGENCY: Domestic Finance, Treasury. 

ACTION: Interim final rule. 

SUMMARY: This interim rule, promulgated pursuant to sections 101(a)(1), 

101(c)(5), and 111(b) of the Emergency Economic Stabilization Act of 2008, 

Division A of Public Law 110-343 (EESA), provides guidance on the executive 

compensation provisions applicable to participants in the Troubled Assets Relief 

Program (TARP) Capital Purchase Program (CPP). Section 111(b) of EESA 

requires financial institutions from which the Department of the Treasury 

(Treasury) is purchasing troubled assets through direct purchases to meet 

appropriate standards for executive compensation and corporate governance. 

This interim final rule includes the following standards for purposes of the CPP: 

(a) limits on compensation that exclude incentives for senior executive officers 
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(SEOs) of financial institutions to take unnecessary and excessive risks that 

threaten the value of the financial institution; (b) required recovery of any bonus 

or incentive compensation paid to a SEO based on statements of earnings, 

gains, or other criteria that are later proven to be materially inaccurate; (c) 

prohibition on the financial institution from making any golden parachute payment 

to any SEO; and (d) agreement to limit a claim to a federal income tax deduction 

for certain executive remuneration. These rules generally affect financial 

institutions that participate in the CPP, certain employers related to those 

financial institutions, and their officers. 

DATES: Effective Date: These regulations are effective on [INSERT DATE OF 

PUBLICATION IN THE FEDERAL REGISTER]. Comment due date: [INSERT 

DATE THAT IS THIRTY DAYS AFTER DATE OF PUBLICATION IN THE 

FEDERAL REGISTER].

ADDRESSES: The Treasury requests comments on the topics addressed in this 

interim rule. Comments may be submitted to the Treasury by any of the following 

methods: Submit electronic comments through the federal government erulemaking portal, www.regulations.gov or by email to 

executivecompensationcomments@do.treas.gov or send paper comments in 

triplicate to Executive Compensation Comments, Office of Financial Institutions 

Policy, Room 1418, Department of the Treasury, 1500 Pennsylvania Avenue, 

NW, Washington, DC 20220. 

 In general, the Treasury will post all comments to www.regulations.gov

without change, including any business or personal information provided such as 
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names, addresses, e-mail addresses, or telephone numbers. The Treasury will 

also make such comments available for public inspection and copying in the 

Treasury’s Library, Room 1428, Main Department Building, 1500 Pennsylvania 

Avenue, NW, Washington, DC 20220, on official business days between the 

hours of 10:00 a.m. and 5:00 p.m. Eastern Time. You can make an appointment 

to inspect comments by telephoning (202) 622-0990. All comments, including 

attachments and other supporting materials, received are part of the public 

record and subject to public disclosure. You should submit only information that 

you wish to make available publicly. 

FOR FURTHER INFORMATION CONTACT: For further information regarding 

this interim rule contact the Office of Domestic Finance, the Treasury, at (202) 

927-6618. 

SUPPLEMENTARY INFORMATION: 

I. Background. 

This document adds 31 CFR Part 30 under section 111(b) of the 

Emergency Economic Stabilization Act of 2008, Div. A of Pub. Law No. 110-343 

(EESA) with respect to the Troubled Assets Relief Program (TARP) Capital 

Purchase Program (CPP) established by the Department of the Treasury 

(Treasury) under EESA. Section 101(a) of EESA authorizes the Secretary of the 

Treasury to establish a TARP to “purchase, and to make and fund commitments 

to purchase, troubled assets from any financial institution, on such terms and 

conditions as are determined by the Secretary, and in accordance with this Act 

and policies and procedures developed and published by the Secretary.” Section 
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120 of EESA provides that the TARP authorities generally terminate on 

December 31, 2009, unless extended upon certification by the Secretary of the 

Treasury to Congress, but in no event later than two years from the date of 

enactment of EESA (October 3, 2008) (the TARP authorities period). Thus, the 

TARP authorities period is the period from October 3, 2008 to December 31, 

2009 or, if extended, the period from October 3, 2008 to the date so extended, 

but not later than October 3, 2010. 

Section 111 of EESA provides that certain financial institutions that sell 

assets to the Treasury may be subject to specified executive compensation 

standards. In the case of auction purchases from a financial institution that has 

sold assets in an amount that exceeds $300 million in the aggregate (including 

direct purchases), the financial institution is prohibited under section 111(c) of 

EESA from entering into any new employment contract with a senior executive 

officer (SEO) that provides a golden parachute to the SEO in the event of the 

SEO’s involuntary termination, or in connection with the financial institution’s 

bankruptcy filing, insolvency, or receivership. This prohibition applies during the 

TARP authorities period. The Treasury has issued separate guidance on this 

provision (Notice 2008-TAAP). 

In addition, for auction purchases, section 302 of EESA includes tax 

provisions as amendments to sections 162(m) and 280G of the Internal Revenue 

Code (26 U.S.C. 162(m) and 280G) that address compensation paid to certain 

executive officers employed by financial institutions that sell assets under TARP. 

Section 302(a) of EESA amended 26 U.S.C. 162(m) to add a new paragraph 
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(m)(5), which reduces the deduction limit to $500,000 in the case of “executive 

remuneration” and “deferred deduction executive remuneration.” This limit 

applies only to certain employers participating in an auction purchase and only 

for certain taxable years. Employers covered under 26 U.S.C. 162(m)(5) are not 

limited to publicly held corporations (nor even to corporations). The exception for 

performance-based compensation and certain other exceptions do not apply in 

the case of executive compensation covered under 26 U.S.C. 162(m)(5). The 

Treasury and the Internal Revenue Service have issued guidance on these 

provisions (I.R.S. Notice 2008-94). 

In the case of direct purchases, section 111(b)(1) of EESA requires 

financial institutions to meet appropriate standards for executive compensation 

and corporate governance as set forth by the Secretary of the Treasury. These 

standards apply to the SEOs of the financial institutions while the Treasury holds 

an equity or debt position in the financial institution acquired under the CPP. 

Section 111(b)(2) of EESA requires that at least three criteria be satisfied by 

financial institutions from which the Treasury directly purchases troubled assets 

and takes a meaningful equity or debt position. The following describes these 

criteria. 

Section 111(b)(2)(A) of EESA requires “limits on compensation that 

exclude incentives for senior executive officers of a financial institution to take 

unnecessary and excessive risks that threaten the value of the financial 

institution during the period that the Secretary holds an equity or debt position in 

the financial institution.” 
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 Section 111(b)(2)(B) of EESA requires “a provision for the recovery by the 

financial institution of any bonus or incentive compensation paid to a senior 

executive officer based on statements of earnings, gains, or other criteria that are 

later proven to be materially inaccurate.” 

 Section 111(b)(2)(C) of EESA requires “a prohibition on the financial 

institution making any golden parachute payment to its senior executive officer 

during the period that the Secretary holds an equity or debt position in the 

financial institution.” 

Treasury Notice 2008-PSSFI addresses these provisions under section 

111(b) of EESA as they apply to financial institutions participating in programs for 

systemically significant failing institutions. Further guidance will be issued for any 

additional programs. 

These regulations are being issued as interim final regulations to 

implement the purpose of EESA, which is to provide immediately authority and 

facilities that the Secretary of the Treasury can use to restore liquidity and 

stability to the financial system of the United States. Thus, to encourage financial 

institutions to choose to participate in the CPP, these regulations provide those 

institutions with information with respect to the applicable executive 

compensation and corporate governance rules that will apply under the CPP. 

II. This Interim Rule. 

These interim final regulations provide guidance on the executive 

compensation and corporate governance provisions of section 111(b) of EESA 

with respect to the CPP. They are written in question and answer format. 
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The regulations clarify that the requirements of section 111(b) of EESA 

apply not only to the financial institution that participates in the CPP, but also to 

any other entity in its controlled group. For this purpose, the controlled group 

rules in section 414(b) and (c) of the Internal Revenue Code (26 U.S.C. 414(b) 

and (c)) apply, but only taking into account parent-subsidiary relationships, not 

brother-sister relationships. These tax rules generally base control on an 80- 

percent ownership basis. Thus, these interim regulations apply to controlled 

groups in a manner similar to the executive compensation provisions of section 

302(a) of EESA, which added 26 U.S.C. 162(m)(5) and 26 U.S.C. 280G(e) to the 

Internal Revenue Code, providing special tax treatment for executive 

compensation for employers participating in the TARP. See 26 U.S.C. 

162(m)(5)(B)(iii) and 26 U.S.C. 280G(e)(2)(A). 

 The requirements in section 111(b) apply with respect to certain executive 

officers identified in § 30.2 (Q-2) of the regulations. The determination of these 

executive officers is made based on rules similar to those set forth in the federal 

securities laws and generally apply to the chief executive officer, the chief 

financial officer, and the three mostly highly compensated executive officers. 

The three most highly compensated executive officers are determined according 

to the requirements in Item 402 of Regulation S-K under the federal securities 

law (17 CFR 229.402) by reference to the total compensation for the last 

completed fiscal year. Until the compensation data for the current fiscal year are 

available, the financial institution should make its best efforts to identify the three 

most highly compensated executive officers for the current fiscal year. 
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Analogous rules apply to financial institutions that do not have securities 

registered with the Securities and Exchange Commission (SEC) pursuant to the 

federal securities laws. 

 With respect to section 111(b)(2)(A) for purposes of participation in the 

CPP, the interim final regulations require the financial institution’s compensation 

committee to identify the features in the financial institution’s SEO incentive 

compensation arrangements that could lead SEOs to take unnecessary and 

excessive risks that could threaten the value of the financial institution. The 

regulations require that the compensation committee review the SEO incentive 

compensation arrangements with the financial institution’s senior risk officers, or 

other personnel acting in a similar capacity, to ensure that SEOs are not 

encouraged to take such risks. The regulations require such review promptly, 

and in no case more than 90 days, after the purchase under the CPP. 

The regulations also require that the compensation committee meet at 

least annually with the financial institution’s senior risk officers to discuss and 

review the relationship between the financial institution’s risk management 

policies and practices and the SEO incentive compensation arrangements. 

In addition, the regulations require the compensation committee to certify 

that it has completed the reviews of the SEO incentive compensation 

arrangements as outlined above. Financial institutions with securities registered 

with the SEC pursuant to the federal securities laws should provide these 

certifications in the Compensation Discussion and Analysis required pursuant to 

Item 402(b) of Regulation S-K under the federal securities laws (17 CFR 
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229.402). Those financial institutions that do not have securities registered with 

the SEC pursuant to the federal securities laws are required to provide the 

certifications to their primary regulatory agency. 

 With respect to section 111(b)(2)(B) of EESA for purposes of participation 

in the CPP, the interim final regulations provide that the SEO bonus and 

incentive compensation paid during the period that the Treasury holds an equity 

or debt position acquired under the CPP must be subject to recovery or 

“clawback” by the financial institution if the payments were based on materially 

inaccurate financial statements and any other materially inaccurate performance 

metric criteria. The regulations include a comparison of this requirement to 

section 304 of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) (Pub. Law No. 

107-204). 

 With respect to section 111(b)(2)(C) of EESA for purposes of participation 

in the CPP, the interim final regulations prohibit a financial institution from making 

any golden parachute payment to a SEO during the period the Treasury holds an 

equity or debt position acquired under the CPP. The regulations define a golden 

parachute payment in the same way as under 26 U.S.C. 280G as applied with 

respect to new paragraph (e) of 26 U.S.C. 280G, added by section 302(a) of 

EESA relating to golden parachute payments. Thus, a golden parachute 

payment means any payment in the nature of compensation to (or for the benefit 

of) a SEO made on account of an applicable severance from employment to the 

extent the aggregate present value of such payments equals or exceeds an 

amount equal to three times the SEO’s base amount. The term “base amount” 
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for a SEO has the meaning set forth in 26 U.S.C. 280G(b)(3) and 26 CFR 

1.280G-1, Q&A-34 (except that references to “change in ownership or control” 

are treated as referring to an “applicable severance from employment”). 

 The regulations define an applicable severance from employment as any 

SEO’s severance from employment with the financial institution (i) by reason of 

involuntary termination of employment with the financial institution or with an 

entity that is treated as the same employer as the financial institution under the 

controlled group rules or (ii) in connection with any bankruptcy filing, insolvency, 

or receivership of the financial institution or of an entity that is treated as the 

same employer as the financial institution under the controlled group rules. The 

regulations define an involuntary termination of employment and set forth rules 

for determining when a payment on account of an applicable severance from 

employment occurs. These rules are substantially the same as the standards in 

IRS Notice 2008-94 regarding new paragraph (e) of 26 U.S.C. 280G, and are 

also generally similar to the pre-existing standards under 26 U.S.C. 280G (see 

26 CFR 1.280G-1, Q&A-22(a)). 

 The regulations include a special rule for cases in which a financial 

institution (target) that has sold troubled assets to the Treasury through the CPP 

is acquired by an entity (acquirer) in an acquisition of any form. Under this rule, 

acquirer does not become subject to section 111(b) of EESA merely as a result 

of the acquisition. The rule applies only if the acquirer is not related to target and 

treats target as related if stock or other interests of target are treated (under 26 

U.S.C. 318(a) other than paragraph (4) thereof) as owned by acquirer. With 
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respect to target, any employees of target who are SEOs prior to the acquisition 

will be subject to section 111(b) of EESA until after the first anniversary following 

the acquisition. 

The regulations set forth an additional standard for executive 

compensation and corporate governance under section 111(b)(1) of EESA. 

Under this standard, the financial institution must agree, as a condition to 

participate in the CPP, that no deduction will be claimed for federal income tax 

purposes for remuneration that would not be deductible if 26 U.S.C. 162(m)(5) 

were to apply to the financial institution. For this purpose, during the period that 

the Treasury holds an equity or debt position in the financial institution acquired 

under the CPP: (i) the financial institution (including entities in its controlled 

group) is treated as an “applicable employer,” (ii) its SEOs are treated as 

“covered executives,” and (iii) any taxable year that includes any portion of that 

period is treated as an “applicable taxable year,” each as defined in 26 U.S.C. 

162(m)(5), except that the dollar limitation and the remuneration for the taxable 

year are prorated for the portion of the taxable year that the Treasury holds an 

equity or debt position in the financial institution under the CPP. The Secretary 

has determined that this is an appropriate standard for executive compensation 

for the CPP. This rule only applies for taxable years that include the period that 

the Treasury holds an equity or debt position in the financial institution acquired 

under the CPP. This standard applies even though the financial institution is not 

subject to 26 U.S.C. 162(m)(5) and only limits the amount of the deduction that 

may be claimed. Thus, no deduction may be claimed for remuneration during a 
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taxable year for compensation in excess of $500,000 for a SEO, and the special 

rules relating to deferred deduction executive remuneration would also apply. 

See I.R.S. Notice 2008-94 for additional information regarding the deduction limit 

under 26 U.S.C. 162(m)(5). 

III. Procedural Requirements. 

Justification for Interim Rulemaking

 This rule is promulgated pursuant to EESA, the purpose of which is to 

immediately provide authority and facilities that the Secretary of the Treasury can 

use to restore liquidity and stability to the financial system of the United States. 

Specifically, this rule implements certain provisions of section 111 of EESA, 

which sets forth executive compensation standards for financial institutions that 

sell troubled assets to the Treasury under EESA. The statute provides that the 

Secretary may issue guidance and regulations to carry out these provisions and 

that such guidance and regulations may be effective upon issuance. 

In order to encourage financial institutions to choose to participate in the 

CPP, those institutions must have timely and reliable information with respect to 

the applicable executive compensation and corporate governance rules that will 

apply under the program. Accordingly, because EESA authorizes section 111 

guidance to be immediately effective and because of exigencies in the financial 

markets, the Treasury finds that it would be contrary to the public interest, 

pursuant to 5 U.S.C. 553(b)(B), to delay the issuance of this rule pending an 

opportunity for public comment and good cause exists to dispense with this 

requirement. For the same reasons, pursuant to 5 U.S.C. 553(d)(3), the 
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Treasury has determined that there is good cause for the interim final rule to 

become effective immediately upon publication. While this regulation is effective 

immediately upon publication, the Treasury is inviting public comment on the 

regulation during a thirty-day period and will consider all comments in developing 

a final rule. 

Regulatory Planning and Review 

 The rule does not meet the criteria for a “significant regulatory action” as 

defined in Executive Order 12866. Therefore, the regulatory review procedures 

contained therein do not apply. 

Regulatory Flexibility Act 

 Because no notice of proposed rulemaking is required, this rule is not 

subject to the provisions of the Regulatory Flexibility Act (5 U.S.C chapter 6). 

List of Subjects in 31 CFR Part 30

 Executive compensation, Troubled assets. 

For the reasons set out in the preamble, Title 31 of the CFR is amended 

as follows: 

PART 30 – TARP CAPITAL PURCHASE PROGRAM 

1. Add part 30 to read as follows: 

PART 30 – TARP CAPITAL PURCHASE PROGRAM 

Sec. 

30.0 Executive compensation and corporate governance. 

30.1 Q-1: To what financial institutions does this part apply? 

30.2 Q-2: Who is a senior executive officer (SEO) under section 111 of 

EESA? 

30.3 Q-3: What actions are necessary for a financial institution 

participating in the CPP to comply with section 111(b)(2)(A) of EESA? 
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30.4 Q-4: How should the financial institution comply with the standard 

under Q&A-3 of this section that the compensation committee, or a 

committee acting in a similar capacity, review the SEO incentive 

compensation arrangements to ensure that the SEO incentive 

compensation arrangements do not encourage the SEOs to take 

unnecessary and excessive risks that threaten the value of the financial 

institution? 

30.5 Q-5: How should the financial institution comply with the certification 

requirements under Q&A-3 of this section? 

30.6 Q-6: What actions are necessary for a financial institution 

participating in the CPP to comply with section 111(b)(2)(B) of EESA? 

30.7 Q-7: How do the standards under section 111(b)(2)(B) of EESA differ 

from section 304 of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) (Pub. 

Law No. 107-204)? 

30.8 Q-8: What actions are necessary for a financial institution 

participating in the CPP to comply with section 111(b)(2)(C) of EESA? 

30.9 Q-9: What is a golden parachute payment under section 111(b) of 

EESA? 

30.10 Q-10: Are there other conditions that are required under the 

executive compensation and corporate governance standards in section 

111(b)(1) of EESA? 

30.11 Q-11: How does section 111(b) of EESA operate in connection with 

an acquisition, merger, or reorganization? 

Authority: Section 111(b) of the Emergency Economic Stabilization Act 

of 2008, Div. A of Pub. L. 110-343; 122 Stat 3765. 

§ 30.0 Executive compensation and corporate governance. 

The following questions and answers reflect the executive compensation 

and corporate governance requirements of section 111(b) of the Emergency 

Economic Stabilization Act of 2008, Div. A of Pub. Law No. 110-343 (EESA) with 

respect to participation in the Troubled Assets Relief Program (TARP) Capital 

Purchase Program (CPP) established by the Treasury thereunder: 

§ 30.1 Q-1: To what financial institutions does this part apply?

(a) General rule. This part applies to any financial institution that 

participates in the CPP. 
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(b) Controlled group rules. For purposes of section 111(b) of EESA, two 

or more persons who are treated as a single employer under section 26 U.S.C. 

414(b) (employees of a controlled group of corporations) and section 26 U.S.C. 

414(c) (employees of partnerships, proprietorships, etc., that are under common 

control) are treated as a single employer. However, for purposes of section 

111(b) of EESA, the rules for brother-sister controlled groups and combined 

groups are disregarded (including disregarding the rules in section 26 U.S.C. 

1563(a)(2) and (a)(3) with respect to corporations and the parallel rules that are 

in section 26 CFR 1.414(c)-2(c) with respect to other organizations conducting 

trades or businesses). See § 30.11 (Q-11) of this part for special rules where a 

financial institution is acquired. 

§ 30.2 Q-2: Who is a senior executive officer (SEO) under section 111 of 

EESA?

(a) General definition. A SEO means a “named executive officer” as 

defined in Item 402 of Regulation S-K under the federal securities laws (17 CFR 

229.402) who: (1) is employed by a financial institution that is participating in the 

CPP while the Treasury holds an equity or debt position acquired under the CPP; 

and (2)(i) is the principal executive officer (PEO) (or person acting in a similar 

capacity) of such financial institution (or, in the case of a controlled group, of the 

parent entity); (ii) the principal financial officer (PFO) (or person acting in a similar 

capacity) of such financial institution (or, in the case of a controlled group, of the 

parent entity); or (iii) one of the three most highly compensated executive officers 
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of such financial institution (or the financial institution’s controlled group) other 

than the PEO or the PFO. 

(b) Determination of three most highly compensated executive officers. 

For financial institutions with securities registered with the Securities and 

Exchange Commission (SEC) pursuant to the federal securities law, the three 

most highly compensated executive officers are determined according to the 

requirements in Item 402 of Regulation S-K under the federal securities laws (17 

CFR 229.402). The term “executive officer” has the same meaning as defined in 

Rule 3b-7 of the Securities Exchange Act of 1934 (Exchange Act) (17 CFR 

240.3b-7). For purposes of determining the three most highly compensated 

executive officers, compensation is determined as it is in Item 402 of Regulation 

S-K to include total compensation for the last completed fiscal year without 

regard to whether the compensation is includible in the executive officer’s gross 

income. Until the compensation data for the current fiscal year are available, the 

financial institution should make its best efforts to identify the three most highly 

compensated executive officers for the current fiscal year. 

(c) Application to private employers. Rules analogous to the rules in 

paragraphs (a) and (b) of this section apply to financial institutions that are not 

subject to the federal securities laws, rules, and regulations, including financial 

institutions that do not have securities registered with the SEC pursuant to the 

federal securities laws. 

§ 30.3 Q-3: What actions are necessary for a financial institution 

participating in the CPP to comply with section 111(b)(2)(A) of EESA?
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In order to comply with section 111(b)(2)(A) of EESA for purposes of 

participation in the CPP, a financial institution must comply with the following 

rules: (1) promptly, and in no case more than 90 days, after the purchase under 

the CPP, the financial institution’s compensation committee, or a committee 

acting in a similar capacity, must review the SEO incentive compensation 

arrangements with such financial institution’s senior risk officers, or other 

personnel acting in a similar capacity, to ensure that the SEO incentive 

compensation arrangements do not encourage SEOs to take unnecessary and 

excessive risks that threaten the value of the financial institution; (2) thereafter, 

the compensation committee, or a committee acting in a similar capacity, must 

meet at least annually with senior risk officers, or individuals acting in a similar 

capacity, to discuss and review the relationship between the financial institution’s 

risk management policies and practices and the SEO incentive compensation 

arrangements; and (3) the compensation committee, or a committee acting in a 

similar capacity, must certify that it has completed the reviews of the SEO 

incentive compensation arrangements required under (1) and (2) above. These 

rules apply while the Treasury holds an equity or debt position acquired under 

the CPP. 

§ 30.4 Q-4: How should the financial institution comply with the standard 

under Q-3 of this section that the compensation committee, or a committee 

acting in a similar capacity, review the SEO incentive compensation 

arrangements to ensure that the SEO incentive compensation 
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arrangements do not encourage the SEOs to take unnecessary and 

excessive risks that threaten the value of the financial institution?

Because each financial institution faces different material risks given the 

unique nature of its business and the markets in which it operates, the 

compensation committee, or a committee acting in a similar capacity, should 

discuss with the financial institution’s senior risk officers, or other personnel 

acting in a similar capacity, the risks (including long-term as well as short-term 

risks) that such financial institution faces that could threaten the value of the 

financial institution. The compensation committee, or a committee acting in a 

similar capacity, should identify the features in the financial institution’s SEO 

incentive compensation arrangements that could lead SEOs to take such risks. 

Any such features should be limited in order to ensure that the SEOs are not 

encouraged to take risks that are unnecessary or excessive. 

§ 30.5 Q-5: How should the financial institution comply with the 

certification requirements under Q-3 of this section?

(a) Certification. The compensation committee, or a committee acting in 

a similar capacity, of the financial institution must provide the certifications 

required by § 30.3 (Q-3) stating that it has reviewed, with such financial 

institution’s senior risk officers, the SEO incentive compensation arrangements to 

ensure that the incentive compensation arrangements do not encourage SEOs to 

take unnecessary and excessive risks. Providing a statement similar to the 

following and in the manner provided in subparagraphs (b) and (c) of this section, 

as applicable, would satisfy this standard: “The compensation committee 
19

certifies that it has reviewed with senior risk officers the SEO incentive 

compensation arrangements and has made reasonable efforts to ensure that 

such arrangements do not encourage SEOs to take unnecessary and excessive 

risks that threaten the value of the financial institution.” 

(b) Location. For financial institutions with securities registered with the 

SEC pursuant to the federal securities law, the compensation committee, or a 

committee acting in a similar capacity, should provide this certification in the 

Compensation Discussion and Analysis required pursuant to Item 402(b) of 

Regulation S-K under the federal securities laws (17 CFR 229.402). 

(c) Application to private financial institutions. The rules provided in this 

section are also applicable to financial institutions that are not subject to the 

federal securities laws, rules, and regulations, including financial institutions that 

do not have securities registered with the SEC pursuant to the federal securities 

laws. A private financial institution should file the certification of the 

compensation committee, or a committee acting in a similar capacity, with its 

primary regulatory agency. 

§ 30.6 Q-6: What actions are necessary for a financial institution 

participating in the CPP to comply with section 111(b)(2)(B) of EESA?

In order to comply with section 111(b)(2)(B) of EESA for purposes of 

participation in the CPP, a financial institution must require that SEO bonus and 

incentive compensation paid during the period that the Treasury holds an equity 

or debt position acquired under the CPP are subject to recovery or “clawback” by 

the financial institution if the payments were based on materially inaccurate 
20

financial statements or any other materially inaccurate performance metric 

criteria. 

§ 30.7 Q-7: How do the standards under section 111(b)(2)(B) of EESA 

differ from section 304 of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) 

(Pub. Law No. 107-204)?

Section 304 of Sarbanes-Oxley requires the forfeiture by a public 

company’s chief executive officer and the chief financial officer of any bonus, 

incentive-based compensation, or equity-based compensation received and any 

profits from sales of the company’s securities during the twelve-month period 

following a materially non-compliant financial report. Section 111(b)(2)(B) of 

EESA differs from section 304 of Sarbanes-Oxley in several ways. The standard 

under section 111(b)(2)(B) of EESA: applies to the three most highly 

compensated executive officers in addition to the PEO and the PFO; applies to 

both public and private financial institutions; is not exclusively triggered by an 

accounting restatement; does not limit the recovery period; and covers not only 

material inaccuracies relating to financial reporting but also material inaccuracies 

relating to other performance metrics used to award bonuses and incentive 

compensation. 

§ 30.8 Q-8: What actions are necessary for a financial institution 

participating in the CPP to comply with section 111(b)(2)(C) of EESA?

In order to comply with section 111(b)(2)(C) of EESA for purposes of 

participation in the CPP, a financial institution must prohibit any golden parachute 
21

payment to a SEO during the period the Treasury holds an equity or debt position 

acquired under the CPP. 

§ 30.9 Q-9: What is a golden parachute payment under section 111(b) of 

EESA?

(a) Definition. As provided under 26 U.S.C. 280G(e), a “golden parachute 

payment” means any payment in the nature of compensation to (or for the benefit 

of) a SEO made on account of an applicable severance from employment to the 

extent the aggregate present value of such payments equals or exceeds an 

amount equal to three times the SEO’s base amount. The term “base amount” 

for a SEO has the meaning set forth in 26 U.S.C. 280G(b)(3) and 26 CFR 

1.280G-1, Q&A-34, except that references to “change in ownership or control” 

are treated as referring to an “applicable severance from employment.” 

(b) Applicable severance from employment. (1) Definition. An applicable 

severance from employment means any SEO’s severance from employment with 

the financial institution (i) by reason of involuntary termination of employment 

with the financial institution or with an entity that is treated as the same employer 

as the financial institution under § 30.1 (Q-1) of this part; or (ii) in connection with 

any bankruptcy filing, insolvency, or receivership of the financial institution or of 

an entity that is treated as the same employer as the financial institution under § 

30.1 (Q-1) of this part. 

(2) Involuntary termination. (i) An involuntary termination from 

employment means a termination from employment due to the independent 

exercise of the unilateral authority of the employer to terminate the SEO’s 
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services, other than due to the SEO’s implicit or explicit request to terminate 

employment, where the SEO was willing and able to continue performing 

services. An involuntary termination from employment may include the financial 

institution’s failure to renew a contract at the time such contract expires, provided 

that the SEO was willing and able to execute a new contract providing terms and 

conditions substantially similar to those in the expiring contract and to continue 

providing such services. In addition, a SEO’s voluntary termination from 

employment constitutes an involuntary termination from employment if the 

termination from employment constitutes a termination for good reason due to a 

material negative change in the SEO’s employment relationship. See 26 

CFR 1.409A-1(n)(2). 

(ii) A severance from employment by a SEO is by reason of involuntary 

termination even if the SEO has voluntarily terminated employment in any case 

where the facts and circumstances indicate that absent such voluntary 

termination the financial institution would have terminated the SEO’s employment 

and the SEO had knowledge that he or she would be so terminated. 

(c) Payments on account of an applicable severance from employment. 

(1) Definition. A payment on account of an applicable severance from 

employment means a payment that would not have been payable if no applicable 

severance from employment had occurred (including amounts that would 

otherwise have been forfeited if no applicable severance from employment had 

occurred) and amounts that are accelerated on account of the applicable 
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severance from employment. See 26 CFR 1.280G-1, Q&A-24(b), for rules 

regarding the determination of the amount that is on account of an acceleration. 

(2) Excluded amounts. Payments on account of an applicable severance 

from employment do not include amounts paid to a SEO under a tax qualified 

retirement plan. 

§ 30.10 Q-10: Are there other conditions that are required under the 

executive compensation and corporate governance standards in section 

111(b)(1) of EESA?

The financial institution must agree, as a condition to participate in the 

CPP, that no deduction will be claimed for federal income tax purposes for 

remuneration that would not be deductible if 26 U.S.C. 162(m)(5) were to apply 

to the financial institution. For this purpose, during the period that the Treasury 

holds an equity or debt position in the financial institution acquired under the 

CPP: (i) the financial institution (including entities in its controlled group) is 

treated as an “applicable employer,” (ii) its SEOs are treated as “covered 

executives,” and (iii) any taxable year that includes any portion of that period is 

treated as an “applicable taxable year,” each as defined in 26 U.S.C. 162(m)(5), 

except that the dollar limitation and the remuneration for the taxable year are 

prorated for the portion of the taxable year that the Treasury holds an equity or 

debt position in the financial institution under the CPP. 

§ 30.11 Q-11: How does section 111(b) of EESA operate in connection with 

an acquisition, merger, or reorganization? 
24

(a) Special rules for acquisitions, mergers, or reorganizations. In the 

event that a financial institution (target) that had sold troubled assets to the 

Treasury through the CPP is acquired by an entity that is not related to target 

(acquirer) in an acquisition of any form, acquirer will not become subject to 

section 111(b) of EESA merely as a result of the acquisition. For this purpose, 

an acquirer is related to target if stock or other interests of target are treated 

(under 26 U.S.C. 318(a) other than paragraph (4) thereof) as owned by acquirer. 

With respect to the target, any employees of target who are SEOs prior to the 

acquisition will be subject to section 111(b)(2)(C) of EESA until after the first 

anniversary following the acquisition. 

(b) Example. In 2008, financial institution A sells $100 million of troubled 

assets to the Treasury through the CPP. In January 2009, financial institution B, 

which is not otherwise subject to section 111(b) of EESA, acquires financial 

institution A in a stock purchase transaction, with the result that financial 

institution A becomes a wholly owned subsidiary of financial institution B. Based 

on the rules in paragraph (a) of this § 30.11 (Q-11), the SEOs of financial 

institution B are not subject to section 111(b) of EESA solely as a result of the 

acquisition of financial institution A in January 2009. The SEOs of financial 

institution A at the time of the acquisition are subject to section 111(b)(2)(C) of 

EESA until January 2010, the first anniversary following the acquisition. 

Dated:____________ 

________________________________ 

Neel Kashkari 

Interim Assistant Secretary for Financial Stability