This document has been submitted to the Office of the Federal Register (OFR) for publication and is 

scheduled for Federal Register publication on June 15, 2009. The document may vary slightly from the 

published document if minor editorial changes have been made during the OFR review process. The 

document published in the Federal Register is the official document. 

Billing Code 4810-25-P 

DEPARTMENT OF THE TREASURY 

31 CFR Part 30

RIN 1505-AC09 

TARP STANDARDS FOR COMPENSATION AND CORPORATE 

GOVERNANCE 

AGENCY: Domestic Finance, Treasury. 

ACTION: Interim final rule. 

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

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

amended by the American Recovery and Reinvestment Act of 2009 (ARRA), provides 

guidance on the executive compensation and corporate governance provisions of EESA 

that apply to entities that receive financial assistance under the Troubled Asset Relief 

Program (TARP). Section 111 of EESA requires entities receiving financial assistance 

(TARP recipients) from the Department of the Treasury (Treasury) to meet appropriate 

standards for executive compensation and corporate governance. This interim final rule 

includes standards for TARP recipients that implement the provisions of section 111 of 
 

 

EESA, as well as certain additional standards adopted pursuant to the authority granted 

the Treasury under section 111(b)(2) to promulgate such additional standards. 

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

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

DATE THAT IS SIXTY DAYS AFTER DATE OF PUBLICATION IN THE 

FEDERAL REGISTER].

ADDRESSES: Treasury invites comments on the topics addressed in this interim final 

rule. Comments may be submitted to Treasury by any of the following methods: Submit 

electronic comments through the federal government e-rulemaking 

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, Treasury will post all comments to www.regulations.gov without 

change, including any business or personal information provided, such as names, 

addresses, e-mail addresses, or telephone numbers. Treasury will also make such 

comments available for public inspection and copying in Treasury’s Library, Room 1428, 

Department of the Treasury, 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 

2
 

 

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 final rule contact the Office of Domestic Finance, Treasury, at (202) 927-

6618. 

SUPPLEMENTARY INFORMATION: 

Executive Summary: 

This Interim Final Rule sets forth the following standards, which generally apply 

to all TARP recipients in the programs under the TARP, subject to certain exceptions for 

TARP recipients that do not hold outstanding obligations: (1) limits on compensation 

that exclude incentives for senior executive officers (SEOs) to take unnecessary and 

excessive risks that threaten the value of the TARP recipient; (2) provision for the 

recovery of any bonus, retention award, or incentive compensation paid to a SEO or the 

next twenty most highly compensated employees based on materially inaccurate 

statements of earnings, revenues, gains, or other criteria; (3) prohibition on making any 

golden parachute payment to a SEO or any of the next five most highly compensated 

employees; (4) prohibition on the payment or accrual of bonus, retention award, or 

incentive compensation to SEOs or certain highly compensated employees, subject to 

certain exceptions for payments made in the form of restricted stock; (5) prohibition on 

employee compensation plans that would encourage manipulation of earnings reported by 

the TARP recipient to enhance an employee’s compensation; (6) establishment of a 

compensation committee of independent directors to meet semi-annually to review 

employee compensation plans and the risks posed by these plans to the TARP recipient; 

3
 

 

(7) adoption of an excessive or luxury expenditures policy; (8) disclosure of perquisites 

offered to SEOs and certain highly compensated employees; (9) disclosure related to 

compensation consultant engagement; (10) prohibition on tax gross-ups to SEOs and 

certain highly compensated employees; (11) compliance with federal securities rules and 

regulations regarding the submission of a non-binding resolution on SEO compensation 

to shareholders; and (12) establishment of the Office of the Special Master for TARP 

Executive Compensation (Special Master) to address the application of these rules to 

TARP recipients and their employees. Among the duties and responsibilities of the 

Special Master with respect to TARP recipients of exceptional assistance is to review and 

approve compensation payments and compensation structures applicable to the SEOs and 

certain highly compensated employees, and to review and approve compensation 

structures applicable to certain additional highly compensated employees. TARP 

recipients that are not receiving exceptional assistance may apply to the Special Master 

for an advisory opinion with respect to compensation payments and structures. For 

further discussion of the Special Master’s responsibilities, see section III.B of this 

preamble. Finally, this interim final rule also establishes compliance reporting and 

recordkeeping requirements regarding the rule’s executive compensation and corporate 

governance standards. This interim final rule generally affects TARP recipients, their 

SEOs, and certain of their highly compensated employees. 

I. Background. 

In October, 2008, the Department of the Treasury (Treasury) established the 

Troubled Asset Relief Program (TARP) under the Emergency Economic Stabilization 

4
 

 

Act of 2008, as amended (12 U.S.C. 5021 et seq.) (EESA). EESA provided immediate 

authority and facilities that the Secretary of the Treasury (Secretary) could use to restore 

liquidity and stability to the financial system. Section 101(a) of EESA authorizes the 

Secretary to establish the 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.” 

On February 13, 2009, Congress enacted the American Recovery and 

Reinvestment Act of 2009 (ARRA), which the President signed into law on February 17, 

2009. Title VII of Division B of the ARRA amended in its entirety section 111 of EESA. 

Section 111 of EESA provides that certain entities that receive financial assistance from 

Treasury under the TARP (TARP recipients) will be subject to specified executive 

compensation and corporate governance standards to be established by the Secretary. 

II. Previous Rulemaking. 

A. October 2008 Interim Final Rule. 

On October 20, 2008, Treasury published in the Federal Register an interim final 

rule (73 FR 62205) adding 31 CFR Part 30 under section 111 of EESA (prior to its later 

amendment by ARRA) (October 2008 Interim Final Rule). The October 2008 Interim 

Final Rule established the original executive compensation standards for financial 

institutions participating in the Capital Purchase Program (CPP), a financial stability 

program implemented under the TARP in October 2008. These standards generally 

applied to the senior executive officers (SEOs) of the CPP participant, that is, the 

5
 

 

principal executive officer (PEO), the principal financial officer (PFO), and the three 

most highly compensated executive officers in addition to the PEO and the PFO. 

Section 111(b)(2)(A) of EESA, prior to the amendment by ARRA, required 

“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.” With respect to section 111(b)(2)(A), the October 2008 

Interim Final Rule required 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 October 2008 Interim Final Rule required that the 

compensation committee review (no more than ninety days after the purchase under the 

CPP and annually thereafter) the SEO incentive compensation arrangements with the 

financial institution’s senior risk officers to ensure that SEOs were not encouraged to take 

such risks. The compensation committee was then required to certify that it had 

completed those reviews. 

 Section 111(b)(2)(B) of EESA required “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.” With respect to this section, the October 2008 Interim Final Rule 

required the SEO bonus and incentive compensation paid while Treasury holds an equity 

or debt position acquired under the CPP to be subject to a provision for recovery or 

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

6
 

 

inaccurate financial statements or any other materially inaccurate performance metric 

criteria. 

 Section 111(b)(2)(C) of EESA required “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.” In 

accordance with this section, the October 2008 Interim Final Rule prohibited a financial 

institution from making any golden parachute payment to a SEO during the period 

Treasury holds an equity or debt position acquired under the CPP. The October 2008 

Interim Final Rule defined a golden parachute payment as 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 of 

compensation. 

 The October 2008 Interim Final Rule also set forth an additional standard for 

executive compensation and corporate governance under the authority of section 

111(b)(1) of EESA. This standard required the financial institution to forgo any 

deduction for compensation for federal income tax purposes in excess of $500,000 for 

each SEO that would not be deductible if section 162(m)(5) of the Internal Revenue Code 

(26 U.S.C. 162(m)(5)) applied to the financial institution. 

B. Other Guidance. 

At the same time of the release of the October 2008 Interim Final Rule, Treasury 

also published guidance relating to other financial stability programs under TARP. 

Treasury Notice 2008-PSSFI addressed the provisions under section 111(b) of EESA as 

7
 

 

applicable to financial institutions participating in programs for systemically significant 

failing institutions. Treasury Notice 2008-PSSFI included the same standards as the 

October 2008 Interim Final Rule with one exception: it prohibited the financial 

institution from making any golden parachute payment (defined more strictly under 

Treasury Notice 2008-PSSFI as any payment made on account of an applicable severance 

from employment) to a SEO. 

In addition, Treasury issued two notices on executive compensation requirements 

applicable to auction programs for purchasing troubled assets. First, pursuant to section 

111(c) of EESA, Notice 2008-TAAP prohibited any financial institution selling more 

than $300,000,000 in troubled assets through an auction program from entering into a 

new SEO employment agreement with a golden parachute provision through the length of 

the program. Second, I.R.S. Notice 2008-94, addressing certain tax provisions in section 

302 of EESA applicable to SEO compensation, required financial institutions selling 

more than $300,000,000 in troubled assets through an auction program to forgo any 

deduction for compensation for federal income tax purposes in excess of $500,000 for 

each SEO under newly added section 162(m)(5) of the Internal Revenue Code (26 U.S.C. 

162(m)(5)) and any deduction for certain SEO golden parachute payments under newly 

added section 280G(e) of the Internal Revenue Code (26 U.S.C. 280G(e)). In addition, 

I.R.S. Notice 2008-94 subjected SEOs to a 20-percent excise tax on these golden 

parachute payments. 

On January 16, 2009, Treasury announced amendments to the October 2008 

Interim Final Rule to include reporting and recordkeeping requirements under the 

8
 

 

executive compensation standards for the CPP. However, these amendments were 

returned from the Federal Register and never published and, thus, will never be effective. 

The provisions of the ARRA and this interim final rule (Interim Final Rule) 

supersede the October 2008 Interim Final Rule, Notice 2008-PSSFI, and Notice 2008-

TAAP, for periods for which the ARRA provisions described in this rule are effective. 

For a more detailed discussion of the effective dates, including the effective date of this 

Interim Final Rule, see §30.17 (Q-17) of the Interim Final Rule, and the discussion of 

§30.17 (Q-17) in section III.B of this preamble. 

In addition, on February 4, 2009, Treasury issued new guidance on the executive 

compensation restrictions under EESA (February 2009 Treasury Guidance). The 

February 2009 Treasury Guidance provided financial institutions participating in the 

TARP with reporting and recordkeeping guidance, including guidance for compensation 

committees in preparing an explanation of how SEO compensation arrangements do not 

encourage excessive and unnecessary risk-taking. 

For entities participating in an exceptional assistance program under the TARP, 

the February 2009 Treasury Guidance proposed to (1) limit the annual compensation of 

senior executives to $500,000 other than restricted stock or other similar long-term 

incentive arrangements; (2) require the vesting schedule of this restricted stock to be 

based on the financial institution’s satisfying repayment obligations, protecting taxpayer 

interests, and meeting lending and stability standards; (3) require full disclosure of 

executive compensation structure and strategy and a non-binding shareholder resolution 

approving or disapproving the structure and strategy; (4) require provisions for clawback 

of bonuses and incentive compensation awarded to SEOs if based on materially 

9
 

 

inaccurate financial statements or performance metrics; (5) require provisions for the 

clawback of bonuses and incentive compensation awarded to the next twenty executive 

officers if based on materially inaccurate financial statements or performance metrics and 

the executive officers had knowingly engaged in providing inaccurate information 

relating to those financial statements or performance metrics; (6) limit the payment of 

any golden parachute payments to the SEOs and the next five executive officers; (7) 

prohibit the payment of any golden parachute payments greater than one year’s 

compensation to the next twenty-five executive officers; and (8) provide guidance for 

boards of directors in adopting a luxury expenditures policy. 

For entities participating in a generally available capital access program under the 

TARP, the February 2009 Treasury Guidance proposed to (1) limit SEO annual 

compensation to $500,000 with any additional pay in the form of restricted stock or other 

similar long-term incentive arrangements carrying the same restrictions as for entities 

participating in an exceptional assistance program; (2) allow entities to waive this 

limitation only by disclosure of SEO compensation and, if requested, a non-binding 

shareholder resolution on that SEO compensation; (3) require provisions for clawback of 

bonuses and incentive compensation awarded to SEOs if based on materially inaccurate 

financial statements or performance metrics; (4) require provisions for clawback of 

bonuses and incentive compensation awarded to the next twenty executive officers if 

based on materially inaccurate financial statements or performance metrics and if the 

executive officers knowingly engaged in providing inaccurate information relating to 

those financial statements or performance metrics; (5) prohibit the payment of any golden 

10
 

 

parachute payments greater than one year’s compensation to the SEOs; and (6) provide 

guidance for boards of directors in adopting a luxury expenditures policy. 

The February 2009 Treasury Guidance provided that the guidelines would not 

apply retroactively to existing investments or to previously announced programs. The 

February 2009 Treasury Guidance also anticipated a public comment period before 

implementation of the guidelines for generally available capital access programs. Before 

the full implementation of the February 2009 Treasury Guidance, Congress enacted the 

ARRA. The ARRA prescribes new executive compensation standards different from the 

Treasury Guidance (except for the similar provisions with respect to required clawback 

provisions and excessive or luxury expenditures policies), and requires Treasury to 

establish these standards by promulgating regulations to implement section 111. This 

Interim Final Rule complies with this statutory requirement to promulgate standards that 

implement the ARRA provisions, consolidates all of the executive-compensation-related 

provisions that are specifically directed at TARP recipients into a single rule (superseding 

all prior rules and guidance), and utilizes the discretion granted to the Secretary under the 

ARRA to adopt additional standards, some of which are adapted from principles set forth 

in the February 2009 Treasury Guidance. 

III. The Interim Final Rule. 

 This Interim Final Rule revises in its entirety 31 CFR Part 30, which comprises 

Treasury’s regulations implementing section 111 of EESA. 

A. Overview of Statutory Provisions. 

 Generally, section 111 of EESA, as amended by ARRA, imposes corporate 

governance and executive compensation requirements on TARP recipients and requires 

11
 

 

Treasury to establish certain corporate governance and executive compensation standards 

with which TARP recipients must comply. Section 111 outlines several specific 

standards, and requires Treasury to establish these standards by promulgating regulations. 

Section 111 also authorizes Treasury to establish additional standards by regulation. 

Section 111(b)(1) of EESA provides that a TARP recipient shall be subject to the 

standards established by the Secretary under that section and the provisions of section 

162(m)(5) of the Internal Revenue Code, as applicable. The October 2008 Interim Final 

Rule required that all TARP recipients forgo any deduction for federal income tax 

purposes for compensation that would not be deductible if section 162(m)(5) of the 

Internal Revenue Code (26 U.S.C. 162(m)(5)) were to apply to the TARP recipient. 

Thus, TARP recipients generally agreed in their applicable contracts with Treasury under 

TARP not to claim a deduction for compensation during a taxable year in excess of 

$500,000 for a SEO. This Interim Final Rule does not impose additional tax related 

restrictions beyond those that already apply under section 162(m)(5). However, because 

these contractual terms are not inconsistent with any provisions of this Interim Final 

Rule, the contractual provisions remain in effect, in accordance with their terms, and 

accordingly, TARP recipients continue to be required to forgo the applicable deduction. 

See §30.17 (Q-17), and the discussion of §30.17 (Q-17) in section III.B of this preamble. 

In addition, Treasury anticipates requiring this condition in any future agreements to 

provide TARP assistance. 

Section 111(b)(3)(A) requires that Treasury promulgate standards limiting SEO 

compensation to exclude incentives for SEOs to take unnecessary and excessive risks 

threatening to the TARP recipient’s value. 

12
 

 

Section 111(b)(3)(B) requires Treasury to establish standards mandating that 

TARP recipients institute a provision to recover any bonus, retention award, or incentive 

compensation paid to a SEO and any of the next twenty most highly compensated 

employees of the TARP recipient if the compensation was based on materially inaccurate 

statements of earnings, revenues, gains, or other criteria (a provision sometimes referred 

to as a “clawback”). 

Section 111(b)(3)(C) requires Treasury to establish standards prohibiting TARP 

recipients from making golden parachute payments (defined in Section 111(a)(2) as any 

payment for “departure from a company for any reason, except for payments for services 

performed or benefits accrued”) to a SEO or any of the next five most highly 

compensated employees. 

Section 111(b)(3)(D) requires Treasury to establish standards prohibiting TARP 

recipients from paying or accruing any bonus, retention award, or incentive compensation 

to certain highly compensated employees or SEOs. This prohibition has two exceptions: 

(1) TARP recipients can pay or accrue such amounts if the amounts are payable as longterm restricted stock, provided that the stock does not fully vest until the repayment of 

TARP assistance, has a value that is no greater than one-third of the total annual 

compensation, and is subject to such other terms and conditions as the Secretary may 

determine to be in the public interest; and (2) TARP recipients can make bonus payments 

required to be paid under written employment contracts executed on or before February 

11, 2009 and determined to be valid by the Secretary. The number of employees to 

which this prohibition applies depends upon the amount of financial assistance provided 

to the TARP recipient. 

13
 

 

Section 111(b)(3)(E) requires Treasury to establish standards prohibiting any 

employee compensation plan that would encourage manipulation of the reported earnings 

of the TARP recipient to enhance the compensation of any of its employees. 

Section 111(b)(3)(F) and Section 111(c) require Treasury to mandate that the 

TARP recipient establish a compensation committee of its board of directors comprised 

entirely of independent members of the board of directors to meet at least semi-annually 

to review, discuss, and evaluate employee compensation plans in light of any assessment 

of any risks these plans pose to the TARP recipients. Section 111(c)(3) provides that the 

board of directors of a TARP recipient that has no common or preferred stock registered 

pursuant to the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) (Exchange Act) 

and has received $25,000,000 or less in financial assistance is required to carry out the 

duties of the compensation committee as described above. 

Section 111(d) requires a TARP recipient’s board of directors to put in place a 

company-wide policy regarding excessive or luxury expenditures, as identified by the 

Secretary, and that may include excessive expenditures on entertainment or events, office 

and facility renovations, aviation or other transportation services, or other activities or 

events that are not reasonable expenditures for staff development, reasonable 

performance incentives, or other similar measures conducted in the normal course of the 

TARP recipient’s business operations. 

Section 111(e) requires that any proxy or consent or authorization for an annual or 

other meeting of the TARP recipient shareholders, as long as any obligation arising from 

TARP assistance remains outstanding, permit a separate nonbinding shareholder vote to 

approve the compensation of executives, as disclosed pursuant to the compensation 

14
 

 

disclosure rules of the Securities and Exchange Commission (SEC). Section 111(e)(3) 

directs the SEC to issue any final rules and regulations necessary to implement this 

requirement not later than February 17, 2010. 

Section 111(b)(4) requires the chief executive officer and the chief financial 

officer of the TARP recipient (or equivalents thereof) to provide a written certification of 

compliance with the requirements of section 111 to the SEC, if the TARP recipient has 

publicly traded securities, or to the Secretary, if the TARP recipient does not have 

publicly traded securities. 

Section 111(f) requires the Secretary to review bonuses, retention awards, and 

other compensation paid to SEOs and the next 20 most highly compensated employees of 

each TARP recipient before the date of enactment of the ARRA to determine whether 

any such payments were inconsistent with the purposes of section 111 of EESA or TARP 

or were otherwise contrary to the public interest, and if such a determination is made, to 

seek to negotiate with the TARP recipient and the subject employee for appropriate 

reimbursement. 

Section 111(h) requires the Secretary to promulgate regulations to implement 

section 111. 

B. Description of the Interim Final Rule. 

 The major provisions of the Interim Final Rule, to be codified at 31 CFR Part 30, 

are as follows: 

Section 111 specifies executive compensation and corporate governance standards 

applicable to TARP recipients. The standards are written in question and answer format. 

15
 

 

Definitions used in the Interim Final Rule are set forth in §30.1 (Q-1) of the 

Interim Final Rule. The executive compensation and corporate governance requirements 

under the Interim Final Rule apply to all TARP recipients, defined in section 111(a)(3) as 

“any entity that has received or will receive financial assistance under the financial 

assistance provided under the TARP.” These restrictions will also generally apply to any 

entity of which the TARP recipient owns at least 50%, or which owns at least 50% of the 

TARP recipient, determined using certain provisions of section 414(b) and (c) of the 

Internal Revenue Code, 26 U.S.C. 414(b) and (c), if those provisions were applied using 

a 50% ownership threshold instead of an 80% ownership threshold. In addition, these 

restrictions may apply to a related entity if the primary purpose for the creation or 

utilization of such entity is to avoid or evade some or all of the restrictions under section 

111. These requirements generally apply for the period during which any obligation 

arising from financial assistance under the TARP remains outstanding (TARP period), 

except any period during which the federal government only holds warrants to purchase 

common stock of the TARP recipient. For TARP recipients that never hold an 

obligation, however, the more limited requirements generally apply through the last date 

of the TARP purchase authority. 

The Interim Final Rule defines financial assistance to include direct financial 

transactions between Treasury and private sector participants in programs under the 

TARP. Although some determinations may be fact specific, entities that do not engage in 

financial transactions with Treasury as a counterparty generally will not be deemed to be 

receiving “financial assistance.” As illustration, for purposes of the Interim Final Rule, 

financial institutions that sell preferred stock to Treasury through the Capital Purchase 

16
 

 

Program are receiving financial assistance and therefore are TARP recipients subject to 

the provisions of the Interim Final Rule. By contrast, entities that post collateral to and 

receive loans from the Federal Reserve Term Asset-Backed Securities Loan Facility 

(TALF) are not receiving “financial assistance provided under the TARP” and, therefore, 

are not TARP recipients under the Interim Final Rule. In the TALF program, Treasury 

has posted a subordinated loan to the Federal Reserve Bank of New York special purpose 

vehicle (SPV), which accepts forfeited collateral from TALF lending. Although the SPV 

has engaged in a financial transaction with Treasury, Treasury has not interpreted ARRA 

to require that the Federal Reserve Bank of New York, as a non-profit government 

instrumentality, be deemed to be receiving financial assistance. Importantly, Federal 

Reserve banks fulfill their governmental function by returning their annual profits to 

Treasury, which limits the extent to which a transaction with Treasury could be deemed 

to be financial assistance. 

These requirements apply to SEOs and certain most highly compensated 

employees, as defined in §30.1. Section 30.1 (Q-1) of the Interim Final Rule bases the 

determination of the SEOs on the executive compensation disclosure requirements in 

Item 402 of Regulation S-K under the federal securities laws (17 CFR 229.402), which 

generally applies to the PEO, the PFO, and the three most highly compensated executive 

officers (other than the PEO and the PFO). Section 30.1 (Q-1) of the Interim Final Rule 

bases the identification of the three most highly compensated executive officers on 

annual compensation for the last completed fiscal year and defines annual compensation 

as it is determined pursuant to Item 402(a) of Regulation S-K under the federal securities 

laws (17 CFR 229.402(a)). To be consistent with the determination of the three most 

17
 

 

highly compensated executive officers, §30.1 (Q-1) of the Interim Final Rule also defines 

the most highly compensated employees according to their annual compensation for the 

last completed fiscal year, as it is determined pursuant to Item 402(a) of Regulation S-K 

under the federal securities laws (17 CFR 229.402(a)). However, a most highly 

compensated employee may be an employee who is not an executive officer. The Interim 

Final Rule does not limit application of the requirements to executive officers because the 

ARRA statutory language refers to most highly compensated employees, rather than most 

highly compensated executive officers, and therefore does not limit the coverage in this 

manner. A most highly compensated employee does not include a former employee of 

the TARP recipient who is not employed by the TARP recipient on the first day of the 

fiscal year for which the determination is being made (as opposed to the preceding fiscal 

year), unless such employee is reasonably anticipated to return to employment with the 

TARP recipient during the fiscal year. 

The Interim Final Rule defines annual compensation in this manner for several 

reasons. Both the ARRA and the original EESA executive compensation provisions 

require that the senior executive officers be determined according to the compensation 

disclosure requirements under federal securities regulations; it would be anomalous to 

treat the determination of most highly compensated employee compensation in a different 

manner. In addition, the compensation required to be disclosed under federal securities 

regulations more closely reflects the economic reality of the compensation that the 

employee actually earned during the year by reporting compensation regardless of 

whether it was includible in income for income tax purposes during that year (for 

example, including the value of a stock option, deferred salary and bonuses when earned) 

18
 

 

in contrast to annual compensation reported as Form W-2 compensation, which reflects 

only compensation that was includible in income for income tax purposes during the 

calendar year regardless of when that compensation was earned (for example, including 

income from stock options generally at the time of exercise and including in income 

deferred salary and bonuses only when those amounts are actually paid in a future year). 

Finally, public companies and investors are familiar with this SEC total annual 

compensation measurement, which was developed through an extensive notice and 

comment process and has been in effect since 2006 as part of the SEC’s final revised 

executive compensation disclosure rule. 

Because the most highly compensated employees are determined based on annual 

compensation earned in the prior year, the issue has been raised that a TARP recipient 

might be able to intentionally cycle employees in and out of most highly compensated 

employee status in alternate years to guarantee periods of complete exclusion for certain 

employees from the executive compensation limitations applicable to most highly 

compensated employees. Some methods that might mitigate, though not eliminate, this 

possibility include identifying the most highly compensated employees based on an 

averaging of the preceding two or three years’ annual compensation, or requiring that 

some or all of the most highly compensated employees identified for one year remain 

subject to the limitations for a prescribed number of additional years, regardless of their 

subsequent level of compensation. The Treasury invites comment on this issue, including 

on the extent to which intentional cycling of most highly compensated employee status is 

likely to occur given that there is no overall compensation limitation on most highly 

compensated employees under the Interim Final Rule, potential methods of addressing 

19
 

 

the issue (including the methods previously mentioned), how such methods would be 

effective in deterring, eliminating, or limiting intentional cycling, and the extent of any 

additional administrative burdens that the application of such methods might create. 

Section 30.1 (Q-1) of the Interim Final Rule requires that TARP recipients that 

are smaller reporting companies, as that term is defined in Item 10 of Regulation S-K 

under the federal securities laws (17 CFR 229.10), identify five SEOs, even if only three 

named executive officers are required to be identified pursuant to Item 402(m) of 

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

apply to TARP recipients that do not have securities registered with the SEC pursuant to 

the federal securities laws. 

Prior to the annual identification of the SEOs, who are typically identified in the 

TARP recipient’s annual report on Form 10-K or annual meeting proxy statement, and 

the most highly compensated employees, §30.3 (Q-3) of the Interim Final Rule requires 

that the TARP recipient ensure that a potential SEO or most highly compensated 

employee comply with the relevant executive compensation and corporate governance 

standards. 

Several requirements under the Interim Final Rule relate to the compensation 

committee of the TARP recipient’s board of directors, and its duties. Pursuant to section 

111(b)(3)(A), section 111(b)(3)(E), and section 111(b)(3)(F), §30.4 (Q-4) of the Interim 

Final Rule requires the TARP recipient to establish a compensation committee composed 

of independent members of the board of directors before the later of ninety days after the 

closing date of the agreement between Treasury and the TARP recipient or ninety days 

after [INSERT DATE OF PUBLICATION IN THE FEDERAL REGISTER] to fulfill a 

20
 

 

number of duties. Many public company TARP recipients already maintain 

compensation committees of independent directors pursuant to stock exchange listing 

standards, and §30.4 (Q-4) of the Interim Final Rule allows for the continued 

maintenance of already-established compensation committees. Section 30.4 (Q-4) of the 

Interim Final Rule also, in accordance with section 111(c)(3), provides an exception for 

certain private company TARP recipients. Thus, §30.4 (Q-4) of the Interim Final Rule 

allows TARP recipients that have no securities registered pursuant to the Exchange Act 

and have received $25,000,000 or less in financial assistance to either establish a 

compensation committee of independent directors or to delegate, as appropriate, to the 

board of directors the duties of the compensation committee as described below. 

Each TARP recipient faces different material risks given the unique nature of its 

business and the markets in which it operates. Thus, §30.5 (Q-5) of the Interim Final 

Rule requires the compensation committee to discuss, evaluate, and review at least every 

six months with senior risk officers SEO compensation plans and employee 

compensation plans and the risks these plans pose to the TARP recipient; identify and 

limit the features in the SEO compensation plans that could lead SEOs to take 

unnecessary and excessive risks that could threaten the value of the TARP recipient; and 

identify and limit any features in the employee compensation plans that pose risks to the 

TARP recipient to ensure that the TARP recipient is not unnecessarily exposed to risks, 

including any features in these SEO compensation plans or the employee compensation 

plans that would encourage behavior focused on short-term results rather than long-term 

value creation. In addition, § 30.6 (Q-6) of the Interim Final Rule requires that the 

compensation committee discuss, evaluate, and review at least every six months the terms 

21
 

 

of each employee compensation plan and identify and eliminate the features in the plan 

that could encourage the manipulation of reported earnings of the TARP recipient to 

enhance the compensation of an employee. 

Sections 30.4 (Q-4) and 30.7 (Q-7) of the Interim Final Rule require the 

compensation committee to provide annually a narrative description of how it limited the 

features in (1) SEO compensation plans that could encourage SEOs to take unnecessary 

and excessive risks that could threaten the value of the TARP recipient, including how 

these SEO compensation plans do not encourage behavior focused on short-term results 

rather than long-term value creation, (2) employee compensation plans to ensure that the 

TARP recipient is not unnecessarily exposed to risks, including how these employee 

compensation plans do not encourage behavior focused on short-term results rather than 

long-term value creation, and (3) employee compensation plans that could encourage the 

manipulation of reported earnings of the TARP recipient to enhance the compensation of 

an employee. 

Sections 30.4 (Q-4) and 30.7 (Q-7) of the Interim Final Rule require that the 

compensation committee certify annually that it has completed the reviews of the SEO 

compensation plans and the employee compensation plans as outlined above. Section 

30.7 (Q-7) of the Interim Final Rule also provides that TARP recipients with securities 

registered with the SEC pursuant to the federal securities laws must provide these 

disclosures and certifications in the Compensation Committee Report required pursuant 

to Item 407 of Regulation S-K under the federal securities laws (17 CFR 229.407) and to 

Treasury. Section 30.7 (Q-7) of the Interim Final Rule requires that TARP recipients that 

are smaller reporting companies or do not have securities registered with the SEC 

22
 

 

pursuant to the federal securities laws provide the disclosures and certifications to their 

primary regulatory agency and to Treasury. 

Pursuant to section 111(b)(3)(B), §30.8 (Q-8) of the Interim Final Rule requires a 

TARP recipient to ensure that any bonus, retention award, or incentive compensation 

paid or accrued during the TARP period to a SEO or one of the next twenty most highly 

compensated employees is subject to a provision for recovery or “clawback” by the 

TARP recipient if the payments or accruals were based on materially inaccurate financial 

statements or any other materially inaccurate performance metric criteria. Section 30.8 

(Q-8) of the Interim Final Rule deems that bonuses, retention awards, and incentive 

compensation are paid or accrued to a SEO or any one of the next twenty most highly 

compensated employees during the TARP period when the SEO or one of the next twenty 

most highly compensated employees obtains a legally binding right to that payment 

during the TARP period. 

This clawback provision differs from the clawback provision required under 

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 or the chief financial officer of any bonus, incentive-based, or equitybased compensation received during the twelve-month period following a materially noncompliant financial report and any profits from sales of the company’s securities during 

that period. In contrast, the standard established under section 111(b)(3)(B) of EESA 

applies to the three most highly compensated executive officers and the next twenty most 

highly compensated employees in addition to the PEO and the PFO; applies to both 

public and private TARP recipients; applies to retention awards; is not exclusively 

23
 

 

triggered by a requirement to prepare an accounting restatement due to material 

noncompliance of the issuer as a result of misconduct; 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 calculate bonus payments. 

Pursuant to section 111(b)(3)(C), §30.9 (Q-9) of the Interim Final Rule prohibits a 

TARP recipient from making a golden parachute payment to a SEO or the next five most 

highly compensated employees during the TARP period. Under the Interim Final Rule, a 

golden parachute payment includes a payment for departure from a TARP recipient for 

any reason, other than a payment for services performed or benefits accrued. Pursuant to 

the authority granted the Secretary under section 111(b)(2) and section 111(h), the 

Interim Final Rule also treats as a golden parachute payment and amount due upon a 

change in control event of the TARP recipient. Section 30.1 (Q-1) of the Interim Final 

Rule excludes from the definition of golden parachute payment qualified retirement plans 

and similar foreign retirement plans, as well as payments due to an employee’s death or 

disability and severance payments required by state statute or foreign law. Given the 

language of the ARRA, there is no longer any exception for any amount of a golden 

parachute payment, such as was allowed under the October 2008 Interim Final Rule. In 

addition, a golden parachute payment is treated as paid at the time of the employee’s 

departure, regardless of when the amounts are actually paid. Therefore, TARP recipients 

and employees may not avoid the restriction by deferring payment of the golden 

parachute payment past the end of the TARP period. 

Pursuant to section 111(b)(3)(D), §30.10 (Q-10) of the Interim Final Rule 

prohibits a TARP recipient from paying or accruing any bonus, retention award, or 

24
 

 

incentive compensation during the TARP period to certain employees. The TARP 

recipient’s amount of financial assistance determines the number of employees subject to 

this prohibition. This prohibition applies to the most highly compensated employee of 

any TARP recipient that has received less than $25,000,000 in financial assistance; to at 

least the five most highly compensated employees of any TARP recipient that has 

received at least $25,000,000 but less than $250,000,000; the SEOs and at least the ten 

next most highly compensated employees of any TARP recipient that has received at 

least $250,000,000 but less than $500,000,000; and the SEOs and at least the twenty next 

most highly compensated employees of any TARP recipient that has received 

$500,000,000 or more. Section 30.10 (Q-10) of the Interim Final Rule states that TARP 

recipients will be subject during the TARP period to the bonus limitation requirements 

based on the total amount of financial assistance outstanding under the TARP. If 

additional financial assistance would result in additional employees becoming subject to 

the prohibition, the prohibition on the additional employees will not be effective until the 

fiscal year following the year during which the additional financial assistance is received. 

Section 30.1 (Q-1) of the Interim Final Rule includes definitions of a bonus, 

incentive compensation or retention award. A bonus means any payment in addition to 

any amount payable to an employee for services performed by the employee at a regular 

hourly, daily, weekly, monthly or similar periodic rate. Generally a bonus would not 

include a contribution to a qualified plan, benefits under a broad-based benefit plan, bona 

fide overtime pay, and bona fide and routine expense reimbursements. Section 30.10 (Q10) contains rules defining when bonuses will be treated as accruing or paid. Notably, 

section 30.10 (Q-10) contains an anti-abuse rule, intending to address circumstances in 

25
 

 

which a bonus that was not permitted to accrue during the year an employee was covered 

by the bonus limitation is paid to the employee in the subsequent year when the employee 

is not covered by the bonus limitation, but is designated as some other form of payment 

such as a salary increase or a stock option grant. In such a case, the payment in the 

subsequent year may be recharacterized as a payment of the bonus that was not permitted 

to accrue in the previous year. 

Section 30.1 (Q-1) of the Interim Final Rule excepts from the definition of a 

bonus certain commission compensation for sales to, and investment management 

services for, unrelated parties. Many TARP recipients have broker-dealer, investment 

advisory, and insurance divisions, where registered representatives, investment advisors, 

and agents typically receive commissions based on the amount of sales of financial 

products or the value of assets under management. In this context, commission payments 

characteristically are viewed as a component of base salary rather than bonus 

compensation. However, fees earned from sales to entities within the affiliated group, 

investment banking, or proprietary trading are not considered commission compensation 

and the Interim Final Rule does not except these fees from the definition of a bonus or 

incentive compensation. 

Section 30.1 (Q-1) of the Interim Final Rule generally defines an incentive 

compensation plan by reference to the Federal securities regulations. However, for 

purposes of this Interim Final Rule, an incentive compensation plan also includes a stock 

option or stock plan, regardless of whether those plans are subject to performance-based 

vesting. The inclusion of these arrangements is consistent with the statute’s classifying 

26
 

 

the grant of a limited amount of long-term restricted stock as an exception to the bonus, 

incentive compensation, and retention award restrictions. 

This inclusion of a stock plan in the definition of an incentive compensation plan 

does not restrict the TARP recipient’s ability to pay salary or other permissible payments 

in the form of stock or other property, even if the stock is issued pursuant to a stock plan. 

In addition, the payment may be made in stock that is subject to holding periods or 

transferability restrictions, such as not permitting the stock to be transferred for a 

specified number of years, until a specified event occurs (such as the employee’s 

retirement, or a specified number of years after an employee’s retirement or other 

termination of employment), or until certain TARP fund repayment hurdles are met. 

However, the payment must still be payment of salary or another permissible amount. 

Accordingly, the amount of the future payment must be denominated in dollars, rather 

than in a number of shares. For example, an employee could be entitled to a salary of 

$5,000 per week, half payable in cash and half payable in stock valued at $2,500 on each 

salary payment date. In addition, as salary, the stock or other property cannot be subject 

to a substantial risk of forfeiture or any requirement of future services (and thus the grant 

of such stock will not be treated as a retention award either), as distinguished from a 

restriction on transferability. The same analysis would apply to a grant of a stock unit 

(such as phantom stock or a restricted stock unit) with similar characteristics to the salary 

payment arrangement described above, in lieu of a grant of the same number of shares. 

Accordingly, the stock unit could not be subject to a substantial risk of forfeiture or other 

requirement of continued services, and would be payable at a fixed date in the future (and 

the arrangement would otherwise need to comply with the requirements of section 409A 

27
 

 

of the Internal Revenue Code (26 U.S.C. 409A)). However, such a structure generally 

will not be feasible during 2009 due to the restrictions under section 409A of the Internal 

Revenue Code (26 U.S.C. 409A). 

Section 30.1 (Q-1) generally defines a retention award as any payment to an 

employee that is not payable periodically to an employee for service performed by the 

employee at a regular hourly, daily, weekly, monthly, or similar periodic rate, is 

contingent on the completion of a period of future service with the TARP recipient or the 

completion of a specific project or other activity of the TARP recipient, and is not based 

on the performance of the employee (other than a requirement that the employee not be 

separated from employment for cause) or the business activities or value of the TARP 

recipient. Exceptions are provided for a contribution to or payment made from a 

qualified plan, or a payment from a benefit plan, overtime pay or reasonable expense 

reimbursement. An exception is also made for amounts accrued under a nonqualified 

deferred compensation plan, to the extent the amounts are accrued in the normal course 

of the employee’s service at the TARP recipient and are not accrued by reason of a 

material enhancement of such benefits. An exception is not provided, however, for 

awards to new hires, including awards as part of a “make-whole” agreement intended to 

provide a newly hired employee a continuation of benefits accruing at a prior employer. 

Such awards are not structurally materially different from retention awards granted to 

current employees, which are intended to be subject to these restrictions. 

Pursuant to section 111(b)(3)(D)(i), §30.10 (Q-10) of the Interim Final Rule 

provides two exclusions from this prohibition on the payment or accrual of bonus, 

retention award, or incentive compensation. The TARP recipient is permitted to award 

28
 

 

long-term restricted stock to the employees subject to this prohibition. Because many 

TARP recipients, especially smaller, family-owned community banks as well as private 

financial institutions, would be unwilling or unable to award restricted stock, §30.1 (Q-1) 

of the Interim Final Rule defines long-term restricted stock to include both restricted 

stock and restricted stock units, which can be settled in stock or cash, and which may be 

designed to track a specific unit or division within a TARP recipient. 

Section 30.10 (Q-10) of the Interim Final Rule describes the restrictions imposed 

upon this stock. Pursuant to section 111(b)(3)(D)(i)(I), §30.11 (Q-11) of the Interim 

Final Rule states that the value of the long-term restricted stock can be no greater than 1/3 

of the employee’s total annual compensation. For purposes of determining annual 

compensation under the long-term restricted stock exception, all equity-based 

compensation granted will be included in the calculation only in the year in which it is 

granted, and will be included at its total fair market value on the grant date, so all equitybased compensation granted in fiscal years ending prior to [INSERT DATE OF 

PUBLICATION IN THE FEDERAL REGISTER] will not be included in the calculation 

of annual compensation. In determining the value of the long-term restricted stock grant, 

the long-term restricted stock will be included in the calculation only in the year in which 

the restricted stock is granted, and will be included at its total fair market value on the 

grant date. This calculation of total annual compensation differs from the calculation 

used to determine the SEOs and most highly compensated employees each year, which is 

determined pursuant to Item 402(a) of Regulation S-K under the federal securities laws 

(17 CFR 229.402(a)). This is necessary to avoid a failure to comply with the Interim 

Final Rule, for instance, if other aspects of the employee’s annual compensation decrease 

29
 

 

in a subsequent year, so that if the grant were included in compensation over multiple 

years, the one-third annual compensation limit could be exceeded merely due to such 

decrease. 

Pursuant to section 111(b)(3)(D)(i)(II), §30.10 (Q-10) of the Interim Final Rule 

states that the excepted long-term restricted stock must not fully vest until the repayment 

of all financial assistance by the TARP recipient. Section 30.10 (Q-10) of the Interim 

Final Rule requires that the employee provide services to the TARP recipient for at least 

two years after the date of the grant of the long-term restricted stock to vest in this stock, 

and prescribes a schedule under which such stock may become transferable (or in the 

case of a restricted stock unit, payable). Specifically, Section 30.10 (Q-10) of the Interim 

Final Rule establishes the following schedule, subject to the further requirements outlined 

below, for the long-term restricted stock: For each 25% of total financial assistance 

repaid, 25% of the total long-term restricted stock granted may become transferable, until 

the final repayment, at which time the remaining long-term restricted stock may become 

transferable. Because, in the case of restricted stock (but not a restricted stock unit), the 

fair market value of the stock may be subject to inclusion in income for income tax 

purposes before the stock becomes transferable, an exception to the transferability 

restriction is provided to the extent necessary to pay the applicable taxes. Nothing in the 

Interim Final Rule, however, prohibits vesting based on longer service periods or 

additional performance-based requirements. 

 Pursuant to section 111(b)(3)(D)(iii), §30.10 (Q-10) of the Interim Final Rule also 

excludes from this prohibition any bonus, retention award, or incentive compensation 

payment required to be paid under a valid written employment contract executed on or 

30
 

 

before February 11, 2009 if the employee has a legally binding right under the contract to 

this payment. For purposes of determining whether an employee had a legally binding 

right to a payment, the Interim Final Rule uses rules specified in 26 CFR 1.409A-1(b)(1). 

In addition, the payment must be made in accordance with the terms of the contract as of 

February 11, 2009, such that any amendment to the contract to increase the amount 

payable, accelerate any vesting conditions, or otherwise materially enhance the benefit 

available to the employee under the contract will result in the payment being treated as 

not made under the employment contract executed on or before February 11, 2009. The 

waiver by the employee of any benefits available to the employee under the terms of the 

contract will not result in the payment of other benefits under the contract being treated 

as made other than under the employment contract executed on or before February 11, 

2009. 

Whether an employee has accrued bonus, retention award, or incentive 

compensation is determined based on the facts and circumstances. However, to avoid 

circumvention of the Interim Final Rule by merely delaying bonus payments until after 

the employee is no longer subject to the prohibition, or granting retroactive service 

credits after the employee is no longer subject to the prohibition, if after the employee is 

no longer a SEO or most highly compensated employee, the employee is paid an amount, 

or provided a legally binding right to the payment of an amount, based upon services 

performed or compensation received during the period the employee was a SEO or most 

highly compensated employee, the employee will be treated as having accrued the 

amount during the period the employee was a SEO or most highly compensated 

employee. 

31
 

 

Certain bonus, retention award, or incentive compensation may relate to a multiyear service period, during some portion of which the employee is subject to the 

prohibition and during some portion of which the employee is not subject to the 

prohibition. In such circumstances, the employee will not be treated as having accrued 

the bonus, retention award, or incentive compensation during the portion of the service 

period the employee was subject to the limitation, if the bonus, retention award, or 

incentive compensation is reduced to reflect at least the portion of the service period that 

the employee was subject to the prohibition. However, if the employee is subject to the 

prohibition at the time the amount would otherwise be paid, the amount still may not be 

paid until the payments to the employee are permitted. 

A bonus, a retention award, or incentive compensation that an employee accrues 

while the employee is not subject to the prohibition on accrual or payment and is payable 

at a time when the employee has become subject to the prohibition, may not be paid until 

the employee is no longer subject to the prohibition. In addition, as part of the conditions 

to a TARP recipient’s receiving financial assistance under the TARP set forth in the 

contract between Treasury and the TARP recipient, the federal government may require 

that certain other bonus, retention award, or incentive compensation not be paid during a 

designated period, such as the period during which the TARP recipient retains any 

financial assistance provided under TARP, or until some other condition related to the 

TARP recipient’s financial health is satisfied. The issue has arisen as to whether the 

failure to pay such bonus, retention award, or incentive compensation would be treated as 

a subsequent deferral election that fails to comply with the requirements of section 409A 

of the Internal Revenue Code (26 U.S.C. 409A) or whether it would convert a payment 

32
 

 

that would otherwise be a short-term deferral, within the meaning of 26 CFR 1.409A1(b)(4), into a payment of deferred compensation that would be subject to the restrictions 

in section 409A. Treasury and Internal Revenue Service officials have advised that the 

delay of the payment until such time as the recipient of the payment is no longer subject 

to the prohibition will not result in a failure to comply with the requirements of section 

409A and will not result in a payment that otherwise would have been a short-term 

deferral being treated as a payment of deferred compensation, so long as the payment is 

made promptly following the first date upon which the payment could be made without 

violating the terms of the agreement between the TARP recipient and Treasury and in 

accordance with the Interim Final Rule. Accordingly, for purposes of the issuance of a 

restricted stock unit intended to qualify as long-term restricted stock as an exception to 

the bonus payment limitation, the unit may be structured with a payment date no later 

than the later of the end of the short-term deferral period or the first date upon which the 

payment is permissible under these rules and the applicable terms of the agreement 

between the TARP recipient and Treasury, and the unit will not be subject to section 

409A provided the payment terms are satisfied. 

Pursuant to section 111(d), §30.12 (Q-12) of the Interim Final Rule requires that 

the board of directors of the TARP recipient adopt an excessive or luxury expenditures 

policy, file this policy with Treasury, and post the text of this policy on its Internet 

website, if the TARP recipient maintains a company website, before the later of ninety 

days after the closing date of the agreement between Treasury and the TARP recipient or 

ninety days after [INSERT DATE OF PUBLICATION IN THE FEDERAL REGISTER]. 

Section 30.1 (Q-1) of the Interim Final Rule defines an excessive or luxury expenditures 

33
 

 

policy to require the inclusion of standards to ensure appropriate review and approval of 

potentially excessive and luxury expenditures. Section 30.1 (Q-1) of the Interim Final 

Rule requires that the policy (1) identify the types and categories of expenses prohibited 

or requiring prior approval; (2) adopt approval procedures for those expenses requiring 

prior approval; (3) mandate PEO and PFO certification of the prior approval of any 

expenditures requiring the prior approval of any SEO, other similar executive officers, or 

the board of directors; (4) mandate prompt internal reporting of any violation of this 

policy; and (5) mandate accountability for adherence to this policy. 

Section 30.12 (Q-12) of the Interim Final Rule requires that the board of directors 

of each TARP recipient determine what are excessive and luxury expenditures and 

establish a set of requirements specific to the TARP recipient under this policy. This is 

similar to the method by which public companies adopted a code of ethics under section 

406 of Sarbanes-Oxley. Under the federal securities regulations promulgated under 

section 406 of Sarbanes-Oxley (17 CFR 229.406), the SEC presented a general 

framework for a code of ethics, but the public company itself was required to adopt 

standards specific to the company using this general framework as a guide. 

Pursuant to section 111(e), TARP recipients are required to permit a nonbinding 

shareholder resolution on SEO compensation as provided pursuant to the compensation 

disclosure rules under the federal securities laws. Section 111(e) authorizes the SEC to 

promulgate any necessary final rules or regulations relating to this requirement. The 

Interim Final Rule requires TARP recipients to comply with any SEC guidance, rules, or 

regulations promulgated with respect to section 111(e). 

34
 

 

Pursuant to section 111(h), and section 111(b)(2), the Secretary is authorized to 

establish additional executive compensation and corporate governance standards. The 

Secretary has determined to adopt four additional standards. First, §30.11(a) (Q-11) of 

the Interim Final Rule requires that TARP recipients receiving exceptional financial 

assistance submit for approval the compensation payments and compensation structures 

of the SEO and most highly compensated employees subject to the bonus payment 

limitation, and the compensation structures of all other executive officers and 100 most 

highly compensated employees, for approval by the Office of the Special Master for 

TARP Executive Compensation. However, if a TARP recipient limits the annual 

compensation for any executive who is not a SEO or a most highly compensated 

employee subject to the bonus limitation provision to $500,000, with any additional 

compensation in long-term restricted stock, the compensation structure is not required to 

be submitted for approval. For this purpose, annual compensation and the value of the 

long-term restricted stock are determined in the same manner as provided in the longterm stock exception in §30.10 (Q-10) of the Interim Final Rule. 

Second, §30.11(b) (Q-11) of the Interim Final Rule requires a TARP recipient to 

disclose to Treasury and its primary federal regulator annually any perquisites whose 

total value exceeds $25,000 for any employee who is subject to the limitations on bonus 

payments. TARP recipients are required to identify the amount and nature of the 

perquisites and disclose a justification for offering these perquisites. Existing federal 

securities regulations require public companies only to identify for any of the top five 

executive officers or members of the boards of directors the type of perquisite if the total 

value of all perquisites exceeds $10,000 for an individual officer or director; and the 

35
 

 

value of any perquisite if the value exceeds the greater of $25,000 or 10% of the total 

amount of perquisites for an individual officer or director. 

Third, §30.11(c) (Q-11) of the Interim Final Rule requires a TARP recipient to 

disclose to Treasury and its primary federal regulator annually whether the TARP 

recipient, the board, or the compensation committee has engaged a compensation 

consultant and all types of services the compensation consultant or any of its affiliates has 

provided to the TARP recipient, the board, or the compensation committee during the 

past three years, including any “benchmarking” or comparisons employed to identify 

certain percentile levels of compensation (for example, other peer group companies used 

for benchmarking and a justification for using these companies, and the lowest percentile 

level of other companies’ employee compensation considered for compensation 

proposals). Existing federal securities regulations require only that public companies 

identify compensation consultants and their role in setting executive and director 

compensation; whether the compensation committee directly engages the compensation 

consultant; the nature and scope of the compensation consultant’s assignment; and the 

material elements of the compensation consultant’s duties under the engagement. 

 Fourth, §30.11(d) (Q-11) of the Interim Final Rule prohibits TARP recipients 

from providing tax gross-ups or other reimbursements for the payment of taxes to any of 

the SEOs and next twenty most highly compensated employees relating to severance 

payments, perquisites, or any other form of compensation. Existing federal securities 

regulations require only that public companies disclose “gross-ups” or other 

reimbursements to the SEOs for the payment of taxes. The Interim Final Rule excludes 

from this prohibition certain international tax equalization arrangements intended to 

36
 

 

compensate an employee for certain different taxes on account of an overseas 

assignment. 

 Section 30.14 (Q-14) of the Interim Final Rule includes a special rule for cases in 

which a TARP recipient (target) is acquired by an entity (acquirer) that is not a TARP 

recipient in an acquisition of any form. Under this rule, the acquirer does not become 

subject to section 111 of EESA as a result of the acquisition. In addition, the employees 

of the target who are SEOs or most highly compensated employees subject to section 111 

immediately prior to the acquisition who continue employment with the acquirer will no 

longer be subject to section 111 of EESA after the acquisition. However, if the primary 

purpose of the acquisition is to avoid or evade application of section 111 of EESA, then 

the acquirer will be treated as a TARP recipient. For purposes of determining the 

affected employees, the principal executive officer and the principal financial officer of 

the post-acquisition acquirer are treated as SEOs. For purposes of identifying the most 

highly compensated employees, the acquirer employees and the pre-acquisition target 

employees who are employed at the acquirer (or anticipated to be employed at the 

acquirer) are aggregated and their most highly compensated employee status determined 

based upon the compensation earned during the most recently completed fiscal year at 

either the pre-acquisition acquirer, or target, as appropriate. 

Pursuant to section 111(b)(4), §30.15 (Q-15) of the Interim Final Rule establishes 

a compliance reporting regime relating to the executive compensation requirements set 

forth in the Interim Final Rule. The Interim Final Rule requires that the PEO and the 

PFO of the TARP recipient provide the following certifications within ninety days of the 

completion of each fiscal year any part of which is a TARP period: (1) the compensation 

37
 

 

committee has met at least every six months during the prior fiscal year with the senior 

risk officers of the TARP recipient to discuss and evaluate SEO compensation plans and 

employee compensation plans and the risks these plans pose to the TARP recipient; (2) 

the compensation committee has identified and limited the features in the SEO 

compensation plans that could lead SEOs to take unnecessary or excessive risks that 

could threaten the value of the TARP recipient, has identified any features in the 

employee compensation plans that pose risks to the TARP recipient, and has limited 

those features to ensure that the TARP recipient is not unnecessarily exposed to risks; (3) 

the compensation committee has reviewed at least every six months the terms of each 

employee compensation plan and identified and limited the features in the plan that could 

encourage the manipulation of reported earnings of the TARP recipient to enhance the 

compensation of an employee; (4) the compensation committee will certify to these 

reviews; (5) the compensation committee will provide a narrative description of how it 

limited the features in (i) SEO compensation plans that could lead SEOs to take 

unnecessary and excessive risks that could threaten the value of the TARP recipient, (ii) 

employee compensation plans to ensure that the TARP recipient is not unnecessarily 

exposed to risks, and (iii) employee compensation plans that could encourage the 

manipulation of reported earnings of the TARP recipient to enhance the compensation of 

an employee; (6) the TARP recipient has required that all bonuses, retention awards, and 

incentive compensation of the SEOs and next twenty most highly compensated 

employees be subject to a provision for recovery or “clawback” by the TARP recipient if 

the payments were based on materially inaccurate financial statements or any other 

materially inaccurate performance metric criteria; (7) the TARP recipient has prohibited 

38
 

 

any golden parachute payment to the SEOs and the next five most highly compensated 

employees; (8) the TARP recipient has limited bonuses, retention awards, and incentive 

compensation paid to or accrued by employees to whom the bonus payment limitation 

applies; (9) for a TARP recipient that has securities registered with the SEC under the 

federal securities laws, it will permit a non-binding shareholder resolution on the SEO 

compensation disclosures provided under the federal securities laws in accordance with 

any guidance, rules, and regulations promulgated by the SEC; (10) the TARP recipient 

has adopted and maintains an excessive or luxury expenditures policy and has provided 

this policy to Treasury in each case in accordance with the requirements under the 

Interim Final Rule; (11) the TARP recipient will disclose the amount, nature, and 

justification for the offering of any perquisites whose total value exceeds $25,000 for 

each of the employees subject to the bonus payment limitations; (12) the TARP recipient 

will disclose whether the TARP recipient, the board, or the compensation committee has 

engaged a compensation consultant, and the services the compensation consultant or any 

affiliate provided; (13) the TARP recipient has prohibited any tax gross-ups on 

compensation to the SEOs and the next twenty most highly compensated employees; (14) 

the TARP recipient has substantially complied with any compensation requirements set 

forth in the agreement between the TARP recipient and the Treasury, as may have been 

amended; (15) certain employees named in the certification are the SEOs and most highly 

compensated employees for the current fiscal year based on their compensation during 

the prior fiscal year; and (16) the officer certifying understands that a knowing and 

willful false or fraudulent statement made in connection with the certification may be 

punished by fine, imprisonment, or both (See, for example 18 USC 1001). In addition, 

39
 

 

the PEO and the PFO of a TARP recipient receiving exceptional financial assistance must 

certify that the TARP recipient has either limited annual compensation to $500,000 

(excluding grants of long-term restricted stock but including certain pension benefits and 

deferred compensation accruals otherwise excluded from annual compensation) for any 

executive officer or one of the 100 most highly compensated employees who is not 

subject to the bonus payment limitations and has or will pay any additional compensation 

in the form of long-term restricted stock, or to the extent not so limited the TARP 

recipient has had the compensation structure of those employees approved by the Office 

of the Special Master for TARP Executive Compensation. 

Section 30.15 (Q-15) of the Interim Final Rule requires that TARP recipients that 

have securities registered with the SEC pursuant to the federal securities laws provide 

these certifications on Exhibit 99.1 in their annual report on Form 10-K and to Treasury, 

and that a TARP recipient that does not have securities registered with the SEC under the 

federal securities laws provide these certifications to its primary regulatory agency and to 

Treasury. The TARP recipient must also preserve appropriate documentation and records 

to substantiate each certification for no less than six years after the date of the 

certification, the first two years in an easily accessible place, and must furnish promptly 

to Treasury any documentation and records requested by Treasury. 

Section 30.15 (Q-15) of the Interim Final Rule also affirms that any individual or 

entity making or providing false information or certifications to Treasury pursuant to the 

Interim Final Rule or as required pursuant to this part may be subject to the criminal 

penalties under title 18 of the U.S. Code or other provision of federal law. 

40
 

 

To comply with EESA Section 111 and this Interim Final Rule, TARP recipients 

generally will need to modify compensation structures. For a small number of TARP 

recipients – those receiving exceptional assistance -- the new compensation structures 

and compensation payments for SEOs and the most highly paid employees are subject to 

review and approval by the Office of the Special Master for TARP Executive 

Compensation (described below). In other instances, TARP recipients may find it helpful 

to have guidance as to how the rules apply to their particular circumstances, or 

confirmation that their modified compensation arrangements are compliant. In addition, 

under section 111(f), the Secretary is charged with reviewing bonuses, retention awards, 

and other compensation paid before February 17, 2009 to SEOs and the next twenty most 

highly compensated employees, and is required to determine whether any such payments 

were inconsistent with the purposes of EESA section 111 or the TARP, or were otherwise 

contrary to the public interest. 

To conduct these reviews most efficiently, and to ensure that the rules are applied 

consistently and equitably, this Interim Final Rule establishes an Office of the Special 

Master for TARP Executive Compensation (Special Master). As described in Section 

30.16 (Q-16) of the Interim Final Rule, the Special Master will be appointed by, and 

serve at the pleasure of, the Secretary. The Secretary may remove the Special Master 

without notice, without cause, and before the naming of any successor Special Master. 

The scope of the Special Master’s authority and responsibility is limited to compensation 

and corporate governance matters under section 111 with respect to TARP recipients, and 

the Special Master has no authority to provide guidance or review any submissions with 

respect to matters other than compensation and corporate governance matters under 

41
 

 

section 111, or to provide guidance or review any submissions with respect to 

compensation or corporate governance matters of employers that are not TARP 

recipients. The Secretary has delegated to the Special Master the authority to (1) 

interpret the application of the restrictions on executive compensation and corporate 

governance requirements for TARP recipient employees under EESA, these regulations, 

and any other applicable guidance, to specific facts and circumstances; (2) administer 

section 111(f) of EESA, which requires the Secretary to review bonuses, retention 

awards, and other compensation paid before February 17, 2009 to employees of each 

entity receiving TARP assistance, to determine whether any such payments were 

inconsistent with the purposes of EESA section 111 or the TARP, or otherwise contrary 

to the public interest, and which further requires that, if the Secretary makes such a 

determination, the Secretary seek to negotiate with the TARP recipient and the employee 

for appropriate reimbursements to the Federal Government with respect to compensation 

or bonuses; (3) approve compensation payments to, and compensation structures for, 

certain employees of TARP recipients receiving exceptional financial assistance; (4) 

provide opinions, as requested or otherwise as appropriate, regarding payments to, or 

compensation structures for, other employees of TARP recipients; and (5) perform such 

other duties as the Secretary may delegate from time to time to the Special Master 

relating to executive compensation issues under the TARP, including the specific 

application of any terms or conditions in a contract between the Treasury and a TARP 

recipient. Section 30.16 (Q-16) also outlines a set of principles that the Special Master is 

required to follow in conducting these reviews. 

42
 

 

Treasury requests comments on potential procedures and terms under which 

employees may return compensation to the TARP recipient or the TARP recipient may 

reimburse Treasury either for compensation paid that the Special Master has determined 

is inconsistent with the purposes of EESA section 111 or the TARP, or otherwise 

contrary to the public interest, or for compensation that was paid contrary to the 

requirements of EESA section 111 and this Interim Final Rule. 

Section 30.17 (Q-17) of the Interim Final Rule states that the standards under the 

Interim Final Rule are effective upon [INSERT DATE OF PUBLICATION IN THE 

FEDERAL REGISTER], except with respect to certain sections of the ARRA 

amendments that were effective immediately upon enactment of the statute (for example, 

amended section 111(d) requiring a nonbinding shareholder vote on executive 

compensation). Accordingly, the bonus payment limitations under the Interim Final Rule 

will not apply to bonuses, retention awards, and incentive compensation paid or accrued 

by TARP recipients or their employees prior to [INSERT DATE OF PUBLICATION IN 

THE FEDERAL REGISTER], and the enhanced golden parachute prohibition will not 

apply to amounts paid prior to [INSERT DATE OF PUBLICATION IN THE FEDERAL 

REGISTER]. In addition, as discussed above, the bonus payment limitations under the 

Interim Final Rule will not apply to bonuses, retention awards, and incentive 

compensation required to be paid pursuant to a written employment contract executed on 

or before February 11, 2009 (a grandfathered arrangement), that is paid on or after 

[INSERT DATE OF PUBLICATION IN THE FEDERAL REGISTER]. However, the 

Special Master may provide an advisory opinion on either or both of these categories of 

payments, stating whether such payments are consistent with ARRA or EESA, or 

43
 

 

otherwise contrary to the public interest, under the same standards applied to the Special 

Master’s review of compensation paid to certain employees prior to the enactment date of 

ARRA, and may seek reimbursement of such payments where appropriate. Finally, the 

Special Master will take into account any payment made prior to [INSERT DATE OF 

PUBLICATION IN THE FEDERAL REGISTER], or any payment made or that may be 

made pursuant to a grandfathered arrangement, as part of the Special Master’s review of 

the compensation payments and structures required to be approved by the Special Master 

for certain employees of TARP recipients receiving exceptional assistance, and for any 

advisory opinion the Special Master may issue with respect to a compensation structure 

for, or compensation payment to, a TARP recipient employee. 

In addition, for the period before [INSERT DATE OF PUBLICATION IN THE 

FEDERAL REGISTER], the provisions of the October 2008 Interim Final Rule, Notice 

2008-PSSFI, and Notice 2008-TAAP, remained in effect. Subject to ARRA and this 

Interim Final Rule, all contractual provisions to which a TARP recipient agreed prior to 

the enactment of ARRA or the publication of this Interim Final Rule also continue in 

effect. 

IV. Procedural Requirements. 

Justification for Interim Rulemaking. 

The Interim Final Rule is promulgated pursuant to EESA, as amended, which 

immediately provides for authority and facilities that the Secretary can use to restore 

liquidity and stability to the financial system of the United States. Specifically, the 

Interim Final Rule implements certain provisions of section 111 of EESA, which directs 

44
 

 

Treasury to establish executive compensation and corporate governance standards for 

entities receiving financial assistance under the TARP. 

To encourage entities to choose or continue to participate in the TARP, those 

entities must have timely and reliable information with respect to the applicable executive 

compensation and corporate governance rules that apply under the TARP. Accordingly, 

because of exigencies in the financial markets, 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 the Interim 

Final 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), Treasury 

has determined that there is good cause for the Interim Final Rule to become effective 

immediately upon publication. While the Interim Final Rule is effective immediately 

upon publication, Treasury is inviting public comment on the Interim Final Rule during a 

sixty-day period and will consider all comments in developing a final rule. 

Regulatory Planning and Review 

 The Interim Final Rule is designated as a “significant regulatory action” as 

defined in Executive Order 12866. The agency has not prepared a regulatory impact 

analysis consistent with the OMB Circular A-4 that examines the likely benefits and costs 

associated with this interim rule. The agency plans to prepare such analysis when it 

promulgates a final rule that will supersede this rulemaking. 

Regulatory Flexibility Act 

 Because no notice of proposed rulemaking is required, the Interim Final Rule is 

not subject to the provisions of the Regulatory Flexibility Act (5 U.S.C chapter 6). 

Paperwork Reduction Act

45
 

 

The information collection contained in the Interim Final Rule has been submitted 

to the Office of Management and Budget (OMB) under the Paperwork Reduction Act (44 

U.S.C. 35) and OMB approval is pending. Under the Paperwork Reduction Act, an 

agency may not conduct or sponsor, and an individual is not required to respond to, a 

collection of information unless it displays a valid OMB control number. Comments on 

the collection of information should be sent to the Desk Officer for the Department of 

Treasury, Office of Information and Regulatory Affairs, Office of Management and 

Budget, Washington, D.C. 20503 (or by e-mail to oira_submission@omb.eop.gov ) with 

a copy to Executive Compensation Comments, Office of Financial Institutions Policy, 

Room 1418, Department of the Treasury, 1500 Pennsylvania Avenue, NW, Washington, 

DC 20220. 

List of Subjects in 31 CFR Part 30

Executive compensation, Troubled assets. 

Accordingly, under the authority of 12 U.S.C. 5221, for the reasons set out in the 

preamble, Treasury amends 31 CFR Subtitle A by revising part 30 to read as follows: 

PART 30 – TARP STANDARDS FOR COMPENSATION AND CORPORATE 

GOVERNANCE 

Sec. 

30.0 Executive compensation and corporate governance. 

30.1 Q-1: What definitions apply in this part? 

30.2 Q-2: To what entities does this part apply? 

30.3 Q-3: How are the SEOs and the most highly compensated employees identified 

for purposes of compliance with this part? 

30.4 Q-4: What actions are necessary for a TARP recipient to comply with the 

standards established under sections 111(b)(3)(A), 111(b)(3)(E), 111(b)(3)(F) and 

111(c) of EESA (evaluation of employee plans and potential to encourage excessive 

risk or manipulation of earnings)? 

30.5 Q-5: How does a TARP recipient comply with the requirements under §30.4 

(Q-4) of this part that the compensation committee discuss, evaluate, and review the 

46
 

 

SEO compensation plans and other employee compensation plans to ensure that the 

SEO compensation plans do not encourage the SEOs to take unnecessary and 

excessive risks that threaten the value of the TARP recipient, or that the employee 

compensation plans pose unnecessary risks to the TARP recipient? 

30.6 Q-6: How does a TARP recipient comply with the requirement under §30.4 

(Q-4) of this part that the compensation committee discuss, evaluate, and review the 

employee compensation plans to ensure that these plans do not encourage the 

manipulation of reported earnings of the TARP recipient to enhance the 

compensation of any of the TARP recipient’s employees? 

30.7 Q-7: How does a TARP recipient comply with the certification and disclosure 

requirements under §30.4 (Q-4) of this part? 

30.8 Q-8: What actions are necessary for a TARP recipient to comply with the 

standards established under section 111(b)(3)(B) of EESA (the “clawback” 

provision requirement)? 

30.9 Q-9: What actions are necessary for a TARP recipient to comply with the 

standards established under section 111(b)(3)(C) of EESA (the prohibition on 

golden parachute payments)? 

30.10 Q-10: What actions are necessary for a TARP recipient to comply with 

section 111(b)(3)(D) of EESA (the limitation on bonus payments)? 

30.11 Q-11: Are TARP recipients required to meet any other standards under the 

executive compensation and corporate governance standards in section 111 of 

EESA? 

30.12 Q-12: What actions are necessary for a TARP recipient to comply with 

section 111(d) of EESA (the excessive or luxury expenditures policy requirement)? 

30.13 Q-13: What actions are necessary for a TARP recipient to comply with 

section 111(e) of EESA (the shareholder resolution on executive compensation 

requirement)? 

30.14 Q-14: How does section 111 of EESA operate in connection with an 

acquisition, merger, or reorganization? 

30.15 Q-15: What actions are necessary for a TARP recipient to comply with the 

certification requirements of section 111(b)(4) of EESA? 

30.16 Q-16: What is the Office of the Special Master for TARP Executive 

Compensation, and what are its powers, duties and responsibilities? 

30.17 Q-17: How do the effective date provisions apply with respect to the 

requirements under section 111 of EESA? 

Authority: 12 U.S.C. 5221; 31 U.S.C. 321. 

§ 30.0 Executive compensation and corporate governance. 

The following questions and answers reflect the executive compensation and 

corporate governance requirements of section 111 of the Emergency Economic 

Stabilization Act of 2008, as amended (12 U.S.C. 5221) (EESA), with respect to 

47
 

 

participation in the Troubled Assets Relief Program (TARP) established by the 

Department of the Treasury (Treasury) thereunder. 

§30.1 Q-1: What definitions apply in this part?

Affiliate. The term “affiliate” means an “affiliate” as that term is defined in Rule 

405 of the Securities Act of 1933 (17 CFR 230.405). 

Annual compensation. (1) General rule. The term “annual compensation” means, 

except as otherwise explicitly provided in this part, the dollar value for total 

compensation for the applicable fiscal year as determined pursuant to Item 402(a) of 

Regulation S-K under the federal securities laws (17 CFR 229.402(a)). Accordingly, for 

this purpose the amounts required to be disclosed pursuant to paragraph (c)(2)(viii) of 

Item 402(a) of Regulation S-K (actuarial increases in pension plans and above market 

earnings on deferred compensation) are not required to be included in annual 

compensation. 

(2) Application to private TARP recipients. For purposes of determining annual 

compensation, a TARP recipient that does not have securities registered with the SEC 

pursuant to the federal securities laws must follow the requirements set forth in paragraph 

(1) of this definition. 

ARRA. The term “ARRA” means the American Recovery and Reinvestment Act 

of 2009 (Public Law No. 111-5). 

Benefit plan. The term “benefit plan” means any plan, contract, agreement or 

other arrangement that is an “employee welfare benefit plan” as that term is defined in 

section 3(1) of the Employee Retirement Income Security Act of 1974, as amended (29 

48
 

 

U.S.C. 1002(1)), or other usual and customary plans such as dependent care, tuition 

reimbursement, group legal services or cafeteria plans; provided, however, that this term 

does not include: 

(1) Any plan that is a deferred compensation plan; or 

(2) Any severance pay plan, whether or not nondiscriminatory, or any other 

arrangement that provides for payment of severance benefits to eligible employees upon 

voluntary termination for good reason, involuntary termination, or termination under a 

window program as defined in 26 CFR 1.409A-1(b)(9)(vi). 

Bonus. The term “bonus” means any payment in addition to any amount payable 

to an employee for services performed by the employee at a regular hourly, daily, 

weekly, monthly, or similar periodic rate. Such term generally does not include 

payments to or on behalf of an employee as contributions to any qualified retirement plan 

(as defined in section 4974(c) of the Internal Revenue Code (26 U.S.C. 4974(c)), benefits 

under a broad-based benefit plan, bona fide overtime pay, or bona fide and routine 

expense reimbursements. In addition, provided that the rate of commission is preestablished and reasonable, and is applied consistently to the sale of substantially similar 

goods or services, commission compensation will not be treated as a bonus. For this 

purpose, a bonus may include a contribution to, or other increase in benefits under, a 

nonqualified deferred compensation plan, regardless of when the actual payment will be 

made under the plan. A bonus may also qualify as a retention award or as incentive 

compensation. 

Bonus payment. For purposes of this part, except where otherwise noted, the term 

“bonus payment” includes a payment that is, or is in the nature of, a bonus, incentive 

49
 

 

compensation, or retention award. Whether a payment is a bonus payment, or whether 

the right to a payment is a right to a bonus payment, is determined based upon all the 

facts and circumstances, and a payment may be a bonus payment regardless of the 

characterization of such payment by the TARP recipient or the employee. For purposes 

of this part, a bonus payment may include the forgiveness of a loan or other amount that 

otherwise may be required to be paid by the employee to the employer. 

Commission compensation. (1) Definition. The term “commission 

compensation” means: 

(i) Compensation or portions of compensation earned by an employee consistent 

with a program in existence for that type of employee as of February 17, 2009, if a 

substantial portion of the services provided by this employee consists of the direct sale of 

a product or service to an unrelated customer, these sales occur frequently and in the 

ordinary course of business of the TARP recipient (but not a specified transaction, such 

as an initial public offering or sale or acquisition of a specified entity or entities), the 

compensation paid by the TARP recipient to the employee consists of either a portion of 

the purchase price for the product or service sold to the unrelated customer or an amount 

substantially all of which is calculated by reference to the volume of sales to the 

unrelated customers, and payment of the compensation is either contingent upon the 

TARP recipient receiving payment from the unrelated customer for the product or service 

or, if applied consistently to all similarly situated employees, is contingent upon the 

closing of the sales transaction and such other requirements as may be specified by the 

TARP recipient before the closing of the sales transaction with the unrelated customer; 

50
 

 

(ii) Compensation or portions of compensation earned by an employee that meet 

the requirements of paragraph (1)(i) of this definition except that the transaction occurs 

with a related customer, provided that substantial sales from which commission 

compensation arises are made, or substantial services from which commission 

compensation arises are provided, to unrelated customers by the service recipient, the 

sales and service arrangement and the commission arrangement with respect to the 

related customer are bona fide, arise from the service recipient’s ordinary course of 

business, and are substantially the same, both in term and in practice, as the terms and 

practices applicable to unrelated customers to which individually or in the aggregate 

substantial sales are made or substantial services provided by the service recipient; or 

(iii) Compensation or portions of compensation earned by an employee consistent 

with a program in existence for that type of employee as of February 17, 2009, if a 

substantial portion of the services provided by this employee to the TARP recipient 

consists of sales of financial products or other direct customer services with respect to 

unrelated customer assets or unrelated customer asset accounts that are generally 

intended to be held indefinitely (and not customer assets intended to be used for a 

specific transaction, such as an initial public offering, or sale or acquisition of a specified 

entity or entities), the unrelated customer retains the right to terminate the customer 

relationship and may move or liquidate the assets or asset accounts without undue delay 

(which may be subject to a reasonable notice period), the compensation consists of a 

portion of the value of the unrelated customer’s overall assets or asset account balance, 

an amount substantially all of which is calculated by reference to the increase in the value 

of the overall assets or account balance during a specified period, or both, or is calculated 

51
 

 

by reference to a contractual benchmark (such as a securities index or peer results), and 

the value of the overall assets or account balance and commission compensation is 

determined at least annually. For purposes of this definition, a customer is treated as an 

unrelated customer if the person would not be treated as related to the TARP recipient 

under 26 CFR 1.409A-1(f)(2)(ii) and the person would not be treated as providing 

management services to the TARP recipient under 26 CFR 1.409A-1(f)(2)(iv). 

(2) Examples. The following examples illustrate the provisions of paragraph (1) 

of this definition: 

Example 1. Employee A is an employee of TARP recipient. Among TARP 

recipient’s businesses is the sale of life insurance policies, and TARP recipient buys and 

sells such policies frequently as part of its ordinary course of business. Employee A’s 

primary duties consist of selling life insurance policies to customers unrelated to the 

TARP recipient. Under a commission program existing for all TARP Recipient 

employees selling life insurance policies as of February 17, 2009, Employee A is entitled 

to receive an amount equal to 75% of the total first year’s premium paid by an unrelated 

customer to whom Employee A has sold a life insurance policy. The payments to 

Employee A under the program constitute commission compensation. 

Example 2. The same facts as Example 1, except that under the program, the rate 

of commission increases to 80% of the total first year’s premium paid by a customer once 

Employee A has sold $10 million in policies in a year. Provided that 80% is a reasonable 

commission, the payments to Employee A under the program constitute commission 

compensation. 

Example 3. Employee B is an employee of TARP recipient. Among TARP 

recipient’s businesses is the investment management of unrelated customer asset 

accounts, and TARP recipient provides such services routinely and in the ordinary course 

of business. Employee B’s primary duties as an employee consist of managing the 

investments of the asset accounts of specified unrelated customers who have deposited 

amounts with the TARP recipient. Under a program in existence on February 17, 2009, 

Employee B is entitled to receive an amount equal to 1% of the aggregate account 

balances of the assets under management, as determined each December 31. The 

payments to Employee B constitute commission compensation. 

Example 4. TARP recipient employs Employee C. As part of Employee C’s 

duties, Employee C is responsible for specified aspects of any acquisition of an unrelated 

entity by TARP Recipient. As part of an acquisition in 2009, Employee C is entitled to 

1% of the purchase price if and when the transaction closes. Regardless of whether such 

52
 

 

an arrangement was customary or established under a specific program as of February 17, 

2009, the amount is not commission compensation because the compensation relates to a 

specified transaction, in this case the purchase of the entity. Accordingly, the 

compensation is incentive compensation. 

Example 5. TARP recipient employs Employee D. As part of Employee D’s 

duties, Employee D is responsible for managing the initial public offerings of securities 

of unrelated customers of TARP recipient. As part of an initial public offering in 2009, 

Employee D is entitled to 1% of the purchase price if and when the initial public offering 

closes. Regardless of whether such an arrangement was customary or established under a 

specific program as of February 17, 2009, the amount is not commission compensation 

because the compensation relates to a specified transaction, in this case the initial public 

offering. Accordingly, the compensation is incentive compensation. 

Compensation means all remuneration for employment, including but not limited 

to salary, commissions, tips, welfare benefits, retirement benefits, fringe benefits and 

perquisites. 

Compensation committee. (1) General rule. The term “compensation committee” 

means a committee of independent directors, whose independence is determined pursuant 

to Item 407(a) of Regulation S-K under the federal securities laws (17 CFR 229.407(a)). 

(2) Application to private TARP recipients. For purposes of determining director 

independence, a TARP recipient that does not have securities registered with the SEC 

pursuant to the federal securities laws must follow the requirements set forth in Item 

407(a)(1)(ii) of Regulation S-K under the federal securities laws (17 CFR 

229.407(a)(1)(ii)).

Compensation structure. The term “compensation structure” means the 

characteristics of the various forms of total compensation that an employee receives or 

may receive, including the amounts of such compensation or potential compensation 

relative to the amounts of other types of compensation or potential compensation, the 

amounts of such compensation or potential compensation relative to the total 

53
 

 

compensation over the relevant period, and how such various forms of compensation 

interrelate to provide the employee his or her ultimate total compensation. These 

characteristics include, but are not limited to, whether the compensation is provided as 

salary, short-term incentive compensation, or long-term incentive compensation, whether 

the compensation is provided as cash compensation, equity-based compensation, or other 

types of compensation (such as executive pensions, other benefits or perquisites), and 

whether the compensation is provided as current compensation or deferred compensation. 

Deferred compensation plan. The term “deferred compensation plan” means 

(1) Any plan, contract, agreement, or other arrangement under which an employee 

voluntarily elects to defer all or a portion of the reasonable compensation, wages, or fees 

paid for services rendered which otherwise would have been paid to the employee at the 

time the services were rendered (including a plan that provides for the crediting of a 

reasonable investment return on such elective deferrals), provided that the TARP 

recipient either: 

(i) Recognizes a compensation expense and accrues a liability for the benefit 

payments according to GAAP; or 

(ii) Segregates or otherwise sets aside assets in a trust which may only be used to 

pay plan and other benefits, except that the assets of this trust may be available to satisfy 

claims of the TARP recipient’s creditors in the case of insolvency; or 

(2) A nonqualified deferred compensation or supplemental retirement plan, other 

than an elective deferral plan established by a TARP recipient: 

(i) Primarily for the purpose of providing benefits for a select group of directors, 

management, or highly compensated employees in excess of the limitations on 

54
 

 

contributions and benefits imposed by sections 415, 401(a)(17), 402(g) or any other 

applicable provision of the Internal Revenue Code (26 U.S.C. 415, 401(a)(17), 402(g)); 

or 

(ii) Primarily for the purpose for providing supplemental retirement benefits or 

other deferred compensation for a select group of directors, management or highly 

compensated employees (excluding severance payments). 

EESA. The term “EESA” means the Emergency Economic Stabilization Act of 

2008, as amended. 

Employee. The term “employee” means an individual serving as a servant in the 

conventional master-servant relationship as understood by the common-law agency 

doctrine. In general, a partner of a partnership, a member of a limited liability company, 

or other similar owner in a similar type of entity, will not be treated as an employee for 

this purpose. However, to the extent that the primary purpose for the creation or 

utilization of such partnership, limited liability company, or other similar type of entity is 

to avoid or evade any or all of the requirements of section 111 of EESA or these 

regulations with respect to a partner, member or other similar owner, the partner, member 

or other similar owner will be treated as an employee. In addition, a personal service 

corporation or similar intermediary between the TARP recipient and an individual 

providing services to the TARP recipient will be disregarded for purposes of determining 

whether such individual is an employee of the TARP recipient. 

Employee compensation plan. The term “employee compensation plan” means 

“plan” as that term is defined in Item 402(a)(6)(ii) of Regulation S-K under the federal 

securities laws (17 CFR 229.402(a)(6)(ii)), but only any employee compensation plan in 

55
 

 

which two or more employees participate and without regard to whether an executive 

officer participates in the employee compensation plan. 

Exceptional financial assistance. The term “exceptional financial assistance” 

means any financial assistance provided under the Programs for Systemically Significant 

Failing Institutions, the Targeted Investment Program, the Automotive Industry 

Financing Program, and any new program designated by the Secretary as providing 

exceptional financial assistance. 

Excessive or luxury expenditures. The term “excessive or luxury expenditures” 

means excessive expenditures on any of the following to the extent such expenditures are 

not reasonable expenditures for staff development, reasonable performance incentives, or 

other similar reasonable measures conducted in the normal course of the TARP 

recipient’s business operations: 

(1) Entertainment or events; 

(2) Office and facility renovations; 

(3) Aviation or other transportation services; and 

(4) Other similar items, activities, or events for which the TARP recipient may 

reasonably anticipate incurring expenses, or reimbursing an employee for 

incurring expenses.

Excessive or luxury expenditures policy. The term “excessive or luxury 

expenditures policy” means written standards applicable to the TARP recipient and its 

employees that address the four categories of expenses set forth in the definition of 

“excessive or luxury expenditures” (entertainment or events, office and facility 

renovations, aviation or other transportation services, and other similar items, activities or 

56
 

 

events), and that are reasonably designed to eliminate excessive and luxury expenditures. 

Such written standards must: 

(1) Identify the types or categories of expenditures which are prohibited (which 

may include a threshold expenditure amount per item, activity, or event or a threshold 

expenditure amount per employee receiving the item or participating in the activity or 

event); 

(2) Identify the types or categories of expenditures for which prior approval is 

required (which may include a threshold expenditure amount per item, activity, or event 

or a threshold expenditure amount per employee receiving the item or participating in the 

activity or event); 

(3) Provide reasonable approval procedures under which an expenditure requiring 

prior approval may be approved; 

(4) Require PEO and PFO certification that the approval of any expenditure 

requiring the prior approval of any SEO, any executive officer of a substantially similar 

level of responsibility, or the TARP recipient’s board of directors (or a committee of such 

board of directors), was properly obtained with respect to each such expenditure; 

(5) Require the prompt internal reporting of violations to an appropriate person or 

persons identified in this policy; and 

(6) Mandate accountability for adherence to this policy. 

Executive officer. The term “executive officer” means an “executive officer” as 

that term is defined in Rule 3b-7 of the Securities Exchange Act of 1934 (Exchange Act) 

(17 CFR 240.3b-7). 

57
 

 

Financial assistance. (1) Definition. The term “financial assistance” means any 

funds or fund commitment provided through the purchase of troubled assets under the 

authority granted to Treasury under section 101 of EESA or the insurance of troubled 

assets under the authority granted to Treasury under section 102 of EESA, provided that 

the term “financial assistance” does not include any loan modification under sections 101 

and 109 of EESA. A change in the form of previously received financial assistance, such 

as a conversion of convertible preferred stock to common stock, is not treated as new or 

additional financial assistance. 

(2) Examples. The following examples illustrate the provisions of paragraph (1) 

of this definition: 

Example 1. Company A sells $500,000,000 of preferred stock to Treasury 

through the Capital Purchase Program. Company A has received financial assistance. 

Example 2. Company B posts collateral to and receives a loan from the Federal 

Reserve special purpose vehicle under the Term Asset-Backed Security Loan Facility 

program. Company B has neither sold troubled assets to Treasury, nor insured troubled 

assets through Treasury, and therefore has not received financial assistance. 

Example 3. LP C is a limited partnership established for the purpose of 

participating in the Public Private Investment Program. LP C has a general partner (GP) 

that makes management decisions on behalf of LP C. A limited liability company 

controlled by an affiliate of GP (LLC partner) raises $55,000,000 from twenty investors, 

with each investing equal shares, joins LP C as a limited partner, and invests those funds 

for a 55% equity interest in LP C. LP C sells a $45,000,000 equity interest to Treasury. 

LP C, at the direction of the GP, will buy and sell securities as investments and manage 

those investments. LP C will contract for investment advice from an investment advisor 

that is an affiliate of GP. LP C has received financial assistance. LLC partner has 

received financial assistance because it is treated as the same employer as LP C according 

to the standards set forth in paragraph (1)(ii) of the definition of "TARP recipient". The 

investors in the LLC partner have not received financial assistance because they are not 

treated as the same employer as LP C according to the standards set forth in paragraph 

(1)(ii) of the definition of "TARP recipient". GP is not an employee of LP C pursuant to 

the definition of "employee" in this rule, and is not treated as the same employer as LP C 

according to the standards set forth in paragraph (1)(ii) of the definition of "TARP 

recipient". The investment advisor-contractor to LP C has not received financial 

assistance. Entities that sell securities to or buy securities from LP C have neither sold 

58
 

 

troubled assets to Treasury nor insured troubled assets through Treasury, and therefore 

have not received financial assistance.   

 Example 4. Company D, a servicer of mortgage loans or mortgaged-backed 

securities, issues a financial instrument to Treasury's financial agent in which Company 

D commits to modify mortgages it is servicing consistent with guidelines established by 

Treasury under the Home Affordable Modification Program. Treasury, through its 

financial agent, commits to pay up to $800,000,000 in incentive payments and credit 

enhancements for Company E's commitment to modify mortgages. Company E has not 

received financial assistance. 

GAAP. The term “GAAP” means U.S. generally accepted accounting principles. 

Golden parachute payment. (1) General rule. The term “golden parachute 

payment” means any payment for the departure from a TARP recipient for any reason, or 

any payment due to a change in control of the TARP recipient or any entity that is 

included in a group of entities treated as one TARP recipient, except for payments for 

services performed or benefits accrued. For this purpose, a change in control includes 

any event that would qualify as a change in control event as defined in 26 CFR 1.280G-1, 

Q&A-27 through Q&A-29 or as a change in control event as defined in 26 CFR 1.409A3(i)(5)(i). For this purpose, a golden parachute payment includes the acceleration of 

vesting due to the departure or the change in control event, as applicable. A golden 

parachute payment is treated as paid at the time of departure or change in control event, 

and is equal to the aggregate present value of all payments made for a departure or a 

change in control event (including the entire aggregate present value of the payment if the 

vesting period was not otherwise completed but was accelerated due to departure, 

regardless of whatever portion of the required vesting period the employee had 

completed). Thus, a golden parachute payment may include a right to amounts actually 

payable after the TARP period. 

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(2) Exclusions. For purposes of this part, a golden parachute payment does not 

include any of the following: 

(i) Any payment made pursuant to a pension or retirement plan which is qualified 

(or is intended within a reasonable period of time to be qualified) under section 401 of the 

Internal Revenue Code (26 U.S.C. 401) or pursuant to a pension or other retirement plan 

which is governed by the laws of any foreign country; 

 (ii) Any payment made by reason of the departure of the employee due to the 

employee’s death or disability; or 

 (iii) Any severance or similar payment which is required to be made pursuant to a 

state statute or foreign law (independent of any terms of a contract or other agreement) 

which is applicable to all employers within the appropriate jurisdiction (with the 

exception of employers that may be exempt due to their small number of employees or 

other similar criteria). 

(3) Payments for services performed or benefits accrued. (i) General rules. 

Except as otherwise provided for payments made under a deferred compensation plan or 

a benefit plan in paragraph (4) of this definition, a payment made, or a right to a payment 

arising under a plan, contract, agreement, or other arrangement (including the 

acceleration of any vesting conditions) is for services performed or benefits accrued only 

if the payment was made, or the right to the payment arose, for current or prior services 

to the TARP recipient (except that an appropriate allowance may be made for services for 

a predecessor employer). Whether a payment is for services performed or benefits 

accrued is determined based on all the facts and circumstances. However, a payment, or 

a right to a payment, generally will be treated as a payment for services performed or 

60
 

 

benefits accrued only if the payment would be made regardless of whether the employee 

departs or the change in control event occurs, or if the payment is due upon the departure 

of the employee, regardless of whether the departure is voluntary or involuntary (other 

than reasonable restrictions, such as the forfeiture of the right to a payment for an 

involuntary departure for cause, but not restrictions relating to whether the departure was 

a voluntary departure for good reason or subsequent to a change in control). 

(ii) Examples. The following examples illustrate the general rules in paragraph 

(3)(i) of this definition: 

Example 1. Employee A is a SEO of Entity B at all relevant times. On 

September 1, 2007, Employee A received a stock appreciation right granting him the 

right to appreciation on the underlying shares that would vest 25% for every twelve 

months of continued services. Under the terms of the grant, the stock appreciation right 

would be immediately exercised and payable upon termination of employment. Entity B 

becomes a TARP recipient in December 2008. On September 1, 2009, Entity B 

involuntarily terminates Employee A, at which time Employee A receives a payment 

equal to the post-September 1, 2007 appreciation on 50% of the shares under the stock 

appreciation right (the portion of the shares that had vested before the termination of 

employment). The payment is treated as a payment for services performed and does not 

constitute a golden parachute payment. 

Example 2. The facts are the same as the facts in Example 1, except that under 

Employee A’s employment agreement, Employee A is entitled to accelerate vesting if 

Employee A is terminated involuntarily other than for cause. If Entity B pays Employee 

A the post-September 1, 2007 appreciation on 100% of the shares under the stock 

appreciation right, the portion of the payment representing the additional 50% accelerated 

vesting due to the termination of employment would not be for services performed and 

would be a golden parachute payment. 

(4) Payments from benefit plans and deferred compensation plans. A payment 

from a benefit plan or a deferred compensation plan is treated as a payment for services 

performed or benefits accrued only if the following conditions are met: 

 (i) The plan was in effect at least one year prior to the employee’s departure; 

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 (ii) The payment is made pursuant to the plan and is made in accordance with the 

terms of the plan as in effect no later than one year before the departure and in 

accordance with any amendments to the plan during this one year period that do not 

increase the benefits payable hereunder; 

 (iii) The employee has a vested right, as defined under the applicable plan 

document, at the time of the departure or the change in control event (but not due to the 

departure or the change in control event) to the payments under the plan; 

 (iv) Benefits under the plan are accrued each period only for current or prior 

service rendered to the TARP recipient (except that an appropriate allowance may be 

made for service for a predecessor employer); 

 (v) Any payment made pursuant to the plan is not based on any discretionary 

acceleration of vesting or accrual of benefits which occurs at any time later than one year 

before the departure or the change in control event; and 

 (vi) With respect to payments under a deferred compensation plan, the TARP 

recipient has previously recognized compensation expense and accrued a liability for the 

benefit payments according to GAAP or segregated or otherwise set aside assets in a trust 

which may only be used to pay plan benefits, except that the assets of this trust may be 

available to satisfy claims of the TARP recipient’s creditors in the case of insolvency and 

payments pursuant to the plan are not in excess of the accrued liability computed in 

accordance with GAAP. 

Gross-up. The term “gross-up” means any reimbursement of taxes owed with 

respect to any compensation, provided that a gross-up does not include a payment under a 

tax equalization agreement, which is an agreement, method, program, or other 

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arrangement that provides payments intended to compensate an employee for some or all 

of the excess of the taxes actually imposed by a foreign jurisdiction on the compensation 

paid by the TARP recipient to the employee over the taxes that would be imposed if the 

compensation were subject solely to U.S. federal, state, and local income tax, or some or 

all of the excess of the U.S. federal, state, and local income tax actually imposed on the 

compensation paid by the TARP recipient to the employee over the taxes that would be 

imposed if the compensation were subject solely to taxes in the applicable foreign 

jurisdiction, provided that the payment made under such agreement, method, program, or 

other arrangement may not exceed such excess and the amount necessary to compensate 

for the additional taxes on the amount paid under the agreement, method, program, or 

other arrangement.

Incentive compensation. The term “incentive compensation” means 

compensation provided under an incentive plan. 

Incentive plan. (1) Definition. The term “incentive plan” means an “incentive 

plan” as that term is defined in Item 402(a)(6)(iii) of Regulation S-K under the federal 

securities laws (17 CFR 229.402(a)(6)(iii)), and any plan providing stock or options as 

defined in Item 402(a)(6)(i) of Regulation S-K under the federal securities laws (17 CFR 

229.402(a)(6)(i)) or other equity-based compensation such as restricted stock units or 

stock appreciation rights, except for the payment of salary or other permissible payments 

in stock, stock units, or other property as described in paragraph (2) of this definition. An 

incentive plan does not include the payment of salary, but does include an arrangement 

under which an employee would earn compensation in the nature of a commission, unless 

such compensation qualifies as commission compensation (as defined above). 

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Accordingly, an incentive plan includes an arrangement under which an employee 

receives compensation only upon the completion of a specified transaction, such as an 

initial public offering or sale or acquisition of a specified entity or entities, regardless of 

how such compensation is measured. For examples, see the definition of “commission 

compensation,” above. An incentive plan, or a grant under an incentive plan, may also 

qualify as a bonus or a retention award. 

(2) Salary or other permissible payments paid in property. The term “incentive 

plan” does not include an arrangement under which an employee receives salary or 

another permissible payment in property, such as TARP recipient stock, provided that 

such property is not subject to a substantial risk of forfeiture (as defined in 26 CFR 1.83-

3(c)) or other future period of required services, the amount of the payment is 

determinable as a dollar amount through the date such compensation is earned (for 

example, an agreement that salary payments will be made in stock equal to the value of 

the cash payment that would otherwise be due), and the amount of stock or other property 

accrues at the same time or times as the salary or other permissible payments would 

otherwise be paid in cash. The term “incentive plan” also does not include an 

arrangement under which an employee receives a restricted stock unit that is analogous to 

TARP recipient stock, that otherwise meets the requirements of the previous sentence. 

For this purpose, a unit is analogous to stock if the unit is based upon stock of the TARP 

recipient, or is applied as if the applicable entity, division, or other unit were a 

corporation with one class of stock and the number of units of stock granted is 

determined based on a fixed percentage of the overall value of this corporation, and the 

term “TARP recipient stock” with respect to a particular employee recipient means the 

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stock of a corporation (or the entity, division, or other unit the value of which forms the 

basis for the unit) that is an “eligible issuer of service recipient stock” under 26 CFR 

1.409A-1(b)(5)(iii)(E) (applied by analogy to non-corporate entities). 

(3) Examples. The following examples illustrate the provisions of paragraph (2) 

of this definition. 

Example 1. Employee is an employee of TARP recipient. For 2010, TARP 

recipient agrees to pay a salary of $15,000, payable monthly. At each salary payment 

date Employee will receive a $10,000 payment in cash, and be transferred a number of 

shares of common stock of TARP recipient equal to $5,000 divided by the fair market 

value of a share of common stock on the salary payment date. The arrangement is for the 

payment of salary, and is not an incentive plan. 

Example 2. Same facts as Example 1, except that pursuant to a valid elective 

deferral election, Employee elects to defer 20% of each salary payment into a 

nonqualified deferred compensation plan. At each salary payment date Employee will 

receive an $8,000 payment in cash, be transferred a number of shares of common stock of 

TARP recipient equal to $4,000 divided by the fair market value of a share of common 

stock on the salary payment date, and a $3,000 contribution to an account under a 

nonqualified deferred compensation plan. The arrangement is for the payment of salary, 

and is not an incentive plan. 

Example 3. Employee is an employee of TARP recipient. For 2010, TARP 

recipient agrees to pay a salary of $15,000, payable monthly. At each salary payment 

date, Employee will receive a $10,000 payment in cash, and accrue a right to a number of 

shares of common stock of TARP recipient equal to $5,000 divided by the fair market 

value of a share of common stock on the salary payment date. At the end of the year, 

TARP recipient will transfer the total number of accrued shares to Employee, subject to a 

multi-year holding period (a restriction that the shares may not be transferred or 

otherwise disposed of by Employee for a specified number of years). If Employee’s 

employment with the TARP recipient terminates during the holding period, the 

termination will not affect the duration or application of the holding period or 

Employee’s right to retain the shares and to transfer or otherwise dispose of them at the 

end of the holding period. The arrangement is for the payment of salary, and is not an 

incentive plan. The arrangement would also be for the payment of salary, and not an 

incentive plan, if the arrangement provided that the holding period was to last until the 

later of a specified time period or a specified time following Employee’s retirement or 

other termination of employment. 

Example 4. Employee is an employee of TARP recipient. For 2010, TARP 

recipient agrees to pay a salary of $15,000, payable monthly. At each salary payment 

date, Employee will receive a $10,000 payment in cash, and accrue a right to a 

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contribution to an account equal to $5,000 divided by the fair market value of a share on 

the salary payment date. The account balance will be subject to notional gains and losses 

based on the investment return on TARP recipient common stock. The amount will be 

payable upon the last day of the second year immediately following the year the services 

are performed. The arrangement is for the payment of salary, and is not an incentive 

plan. However, the arrangement generally will provide deferred compensation for 

purposes of section 409A of the Internal Revenue Code. 

Internal Revenue Code. The term “Internal Revenue Code” means the Internal 

Revenue Code of 1986, as amended. 

Long-term restricted stock. The term “long-term restricted stock” means 

restricted stock or restricted stock units that include the following features: 

(1) The restricted stock or restricted stock units are issued with respect to 

common stock of the TARP recipient. For this purpose, a restricted stock unit includes a 

unit that is payable, or may be payable, in cash or stock, provided that the value of the 

payment is equal to the value of the underlying stock. With respect to a specified 

division or other unit within a TARP recipient or a TARP recipient that is not a stock 

corporation, a unit analogous to common stock may be used. For this purpose, a unit is 

analogous to common stock if applied as if the entity, division, or other unit were a 

corporation with one class of common stock and the number of units of common stock 

granted is determined based on a fixed percentage of the overall value of this corporation. 

Notwithstanding the foregoing, with respect to a particular employee recipient, the 

corporation the stock of which is utilized (or the entity, division, or other unit the value of 

which forms the basis for the unit) must be an “eligible issuer of service recipient stock” 

under 26 CFR 1.409A-1(b)(5)(iii)(E) (applied by analogy to non-corporate entities). 

(2) The restricted stock or restricted stock unit may not become transferable (as 

defined in 26 CFR 1.83-3(d)), or payable as applied to a restricted stock unit, at any time 

66
 

 

earlier than permitted under the following schedule (except as necessary to reflect a 

merger or acquisition of the TARP recipient): 

(i) 25% of the shares or units granted at the time of repayment of 25% of the 

aggregate financial assistance received. 

(ii) An additional 25% of the shares or units granted (for an aggregate total of 

50% of the shares or units granted) at the time of repayment of 50% of the 

aggregate financial assistance received. 

(iii) An additional 25% of the shares or units granted (for an aggregate total of 

75% of the shares or units granted) at the time of repayment of 75% of the 

aggregate financial assistance received. 

(iv) The remainder of the shares or unit granted at the time of repayment of 100% 

of the aggregate financial assistance received. 

(3) Notwithstanding the foregoing, in the case of restricted stock for which the 

employee does not make an election under section 83(b) of the Internal Revenue Code 

(26 U.S.C. 83(b)), at any time beginning with the date upon which the stock becomes 

substantially vested (as defined in 26 CFR 1.83-3(b)) and ending on December 31 of the 

calendar year including that date, a portion of the restricted stock may be made 

transferable as may reasonably be required to pay the federal, state, local, or foreign taxes 

that are anticipated to apply to the income recognized due to this vesting, and the 

amounts made transferable for this purpose shall not count toward the percentages in the 

schedule above. 

(4) The employee must be required to forfeit the restricted stock or restricted 

stock unit if the employee does not continue performing substantial services for the 

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TARP recipient for at least two years from the date of grant, other than due to the 

employee’s death or disability, or a change in control event (as defined in 26 CFR 

1.280G-1, Q&A-27 through Q&A-29 or as defined in 26 CFR 1.409A-3(i)(5)(i)) with 

respect to the TARP recipient before the second anniversary of the date of grant. 

(5) Nothing in paragraphs (1), (2), (3), and (4) of this definition is intended to 

prevent the placement on such restricted stock or restricted stock unit of any additional 

restrictions, conditions, or limitations that are not inconsistent with the requirements of 

these paragraphs. 

Most highly compensated employee. (1) In general. The term “most highly 

compensated employee” means the employee of the TARP recipient, other than the SEOs 

of the TARP recipient, whose annual compensation is determined to be the highest 

among all employees of the TARP recipient, provided that, for this purpose, a former 

employee who is no longer employed as of the first day of the relevant fiscal year of the 

TARP recipient is not a most highly compensated employee unless it is reasonably 

anticipated that such employee will return to employment with the TARP recipient during 

such fiscal year. 

(2) Application to new entities. For an entity that is created or organized in the 

same year that the entity becomes a TARP recipient, a most highly compensated 

employee for the first year includes the person that the TARP recipient determines will be 

the most highly compensated employee for the next year based upon a reasonable, good 

faith determination of the projected annual compensation of such person earned during 

that year. This determination must be made as of the later of the date the entity is created 

or organized or the date the entity becomes a TARP recipient, and must be made only 

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once. However, a person need not yet be an employee to be treated as a most highly 

compensated employee, if it is reasonably anticipated that the person will become an 

employee of the TARP recipient during the first year. 

Obligation. (1) Definition. The term “obligation” means a requirement for, or an 

ability of, a TARP recipient to repay financial assistance received from Treasury, as 

provided in the terms of the applicable financial instrument and related agreements, 

through the repayment of a debt obligation or the redemption or repurchase of an equity 

security, but not including warrants to purchase common stock of the TARP recipient. 

(2) Examples. The following examples illustrate the provisions of paragraph (1) 

of this definition. 

Example 1. TARP recipient sells $500 million of preferred stock to Treasury, and 

provides warrants to Treasury for the purchase of $75 million of common stock. The 

TARP recipient has an ability to redeem the preferred stock and thus maintains an 

outstanding obligation to Treasury. 

Example 2. Same facts as Example 1, except that TARP recipient redeems the 

$500 million of preferred stock, so that Treasury holds only the $75 million of warrants 

to purchase common stock outstanding. TARP recipient does not maintain an 

outstanding obligation to Treasury. 

Example 3. TARP recipient sells $120 million of securities backed by Small 

Business Administration-guaranteed loans to Treasury through the Consumer and 

Business Lending initiative, and provides warrants to Treasury for the purchase of $10 

million of common stock. Because the TARP recipient does not as a result of this 

transaction owe a debt obligation or have a requirement or right to redeem or repurchase 

an equity security (other than the warrants to purchase common stock provided to the 

Treasury), the TARP recipient does not have an outstanding obligation to Treasury as a 

result of this transaction. 

PEO. The term “PEO” means the principal executive officer or an employee 

acting in a similar capacity. 

Perquisite. The term “perquisite” means a “perquisite or other personal benefit” 

the amount of which is required to be included in the amount reported under Item 

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402(c)(2)(ix)(A) of Regulation S-K under the federal securities laws (17 CFR 

229.402(c)(2)(ix)(A)) (Column (i) of the Summary Compensation Table (All Other 

Compensation)), modified to also include any such perquisite or other personal benefit 

provided to a most highly compensated employee subject to §30.11(b) (Q-11). 

PFO. The term “PFO” means the principal financial officer or an employee 

acting in a similar capacity. 

Primary regulatory agency. The term “primary regulatory agency” means the 

federal regulatory agency that has primary supervisory authority over the TARP 

recipient. For a TARP recipient that is a state-chartered bank that does not have 

securities registered with the SEC pursuant to the federal securities laws, the primary 

regulatory agency is the TARP recipient’s primary federal banking regulator. If a TARP 

recipient is not subject to the supervision of a federal regulatory agency, the term 

“primary regulatory agency” means the Treasury. 

Repayment. The term “repayment” means satisfaction of an obligation. 

Retention award. (1) General definition. The term “retention award” means any 

payment to an employee, other than a payment of commission compensation, a payment 

made pursuant to a pension or retirement plan which is qualified (or is intended within a 

reasonable period of time to be qualified) under section 401 of the Internal Revenue Code 

(26 U.S.C. 401), a payment made pursuant to a benefit plan, or a payment of a fringe 

benefit, overtime pay, or reasonable expense reimbursement that: 

(i) Is not payable periodically to an employee for services performed by the 

employee at a regular hourly, daily, weekly, monthly, or similar periodic rate (or would 

not be payable in such manner absent an elective deferral election); 

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(ii) Is contingent on the completion of a period of future service with the TARP 

recipient or the completion of a specific project or other activity of the TARP recipient; 

and 

 (iii) Is not based on the performance of the employee (other than a requirement 

that the employee not be separated from employment for cause) or the business activities 

or value of the TARP recipient. 

(2) New hires. With respect to newly hired employees, a payment that will be 

made only if the new hire continues providing services for a specified period generally 

constitutes a retention award. For example, a signing bonus that must be repaid unless 

the newly hired employee completes a certain period of service is a retention award. 

Similarly, a “make-whole” agreement under which a newly hired employee is provided 

benefits intended to make up for benefits foregone at his former employer, where these 

new benefits are subject to a continued service period vesting requirement (such as a 

continuation of the vesting period at the former employer), is a retention award. 

(3) Deferred compensation plans. Whether a benefit under a deferred 

compensation plan that is subject to a service vesting period is a retention award depends 

on all the facts and circumstances. However, to the extent an employee continues to 

accrue, or becomes eligible to accrue, a benefit under a plan the benefits under which 

have not been materially enhanced for a significant period of time prior to the employee 

becoming an SEO or most highly compensated employee (including through expansion 

of the eligibility for such plan), the benefits accrued generally will not be a retention 

award. However, to the extent the plan is amended to materially enhance the benefits 

provided under the plan or to make such employee eligible to participate in such plan, 

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and such benefits are subject to a requirement of a continued period of service, such an 

amendment generally will be a retention award. 

SEC. The term “SEC” means the U.S. Securities and Exchange Commission. 

Senior executive officer or SEO. (1) General definition. The term “senior 

executive officer” or “SEO” means a “named executive officer” as that term is 

determined pursuant to Instruction 1 to Item 402(a)(3) of Regulation S-K under the 

federal securities laws (17 CFR 229.402(a)) who is an employee of the TARP recipient. 

 (2) Application to smaller reporting company. A TARP recipient that is a 

smaller reporting company must identify SEOs pursuant to paragraph (1) of this 

definition. Such a TARP recipient must identify at least five SEOs, even if only three 

named executive officers are provided in the disclosure pursuant to Item 402(m)(2) of 

Regulation S-K under the federal securities laws (17 CFR 229.402(m)(2)), provided that 

no employee must be identified as a SEO if the employee’s total annual compensation 

does not exceed $100,000 as defined in Item 402(a)(3)(1) of Regulation S-K under the 

federal securities laws (17 CFR 229.402(a)(3)(1)). 

(3) Application to private TARP recipients. A TARP recipient that does not have 

securities registered with the SEC pursuant to the federal securities laws must identify 

SEOs in accordance with rules analogous to the rules in paragraph (1) of this definition. 

SEO compensation plan. The term “SEO compensation plan” means “plan” as 

that term is defined in Item 402(a)(6)(ii) of Regulation S-K under the federal securities 

laws (17 CFR 229.402(a)(6)(ii)), but only with regard to a SEO compensation plan in 

which a SEO participates. 

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Senior risk officer. The term “senior risk officer” means a senior risk executive 

officer or employee acting in a similar capacity. 

Smaller reporting company. The term “smaller reporting company” means a 

“smaller reporting company” as that term is defined in Item 10(f) of Regulation S-K 

under the federal securities laws (17 CFR 229.10(f)). 

Sunset date. The term “sunset date” means the date on which the authorities 

provided under EESA section 101 and 102 terminate, pursuant to EESA section 120, 

taking into account any extensions pursuant to EESA section 120(b). 

TARP. The term “TARP” means the Troubled Asset Relief Program, established 

pursuant to EESA. 

TARP fiscal year. The term “TARP fiscal year” means a fiscal year of a TARP 

recipient, or the portion of a fiscal year of a TARP recipient, that is also a TARP period. 

TARP period. The term “TARP period” means the period beginning with the 

TARP recipient’s receipt of any financial assistance and ending on the last date upon 

which any obligation arising from financial assistance remains outstanding (disregarding 

any warrants to purchase common stock of the TARP recipient that the Treasury may 

hold).

TARP recipient. (1) General definition. The term “TARP recipient” means 

(i) Any entity that has received or holds a commitment to receive financial 

assistance; and 

(ii) Any entity that would be treated as the same employer as an entity receiving 

financial assistance based on the rules in sections 414(b) and 414(c) of the Internal 

Revenue Code (26 U.S.C. 414(b) or (c)), but modified by substituting “50%” for “80%” 

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in each place it appears in section 414(b) or 414(c) and the accompanying regulations. 

However, for purposes of applying the aggregation rules to determine the applicable 

employer, the rules for brother-sister controlled groups and combined groups are 

disregarded (including disregarding the rules in section 1563(a)(2) and (a)(3) of the 

Internal Revenue Code (26 U.S.C. 1563(a)(2) and (a)(3)) with respect to corporations and 

the parallel rules that are in 26 CFR 1.414(c)-2(c) with respect to other organizations 

conducting trades or businesses). 

(2) Certain excluded entities. Neither any entity receiving funds under TARP 

pursuant to section 109 of EESA nor any Federal Reserve bank as that term is used in the 

Federal Reserve Act (12 U.S.C. 221 et seq.) will be treated as a TARP recipient subject to 

section 111 of EESA and any rules and regulations promulgated thereunder. 

(3) Anti-abuse rule. Notwithstanding paragraph (1) of this definition, the term 

“TARP recipient” means any entity that has received, or holds a commitment to receive, 

financial assistance; and any entity related to such TARP recipient to the extent that the 

primary purpose for the creation or utilization of such entity is to avoid or evade any or 

all of the requirements of section 111 of EESA or these regulations. 

Treasury. The term “Treasury” means the U.S. Department of the Treasury. 

Valid employment contract. The term “valid employment contract” means a 

written employment contract that is: 

(1)(i) A material contract as determined pursuant to Item 601(b)(10)(iii)(A) of 

Regulation S-K under the federal securities laws (17 CFR 229.601(b)(10)(iii)(A)); or 

(ii) A contract that would be deemed a material contract as determined pursuant to 

Item 601(b)(10)(iii) of Regulation S-K under the federal securities laws (17 CFR 

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229.601(b)(10)(iii)), but for the fact that the material contract relates to one or more 

employee who is not an executive officer; and 

(2) Is enforceable under the law of the applicable jurisdiction. 

§30.2 Q-2: To what entities does this part apply?

This part applies to any TARP recipient, provided that the requirements of 

sections 111(b) (portions of §30.4 (Q-4), §30.5 (Q-5) and §30.7 (Q-7), as applicable, 

§30.6 (Q-6), and §30.8 (Q-8) through §30.11 (Q-11), and §30.15 (Q-15)), and section 

111(e) (§30.13 (Q-13)) apply only during the period during which any obligation to the 

Federal government arising from financial assistance provided under the TARP remains 

outstanding. The requirements of section 111(c) (including portions of §30.4 (Q-4), 

§30.5 (Q-5) and §30.7 (Q-7), as applicable) and section 111(d) (§30.12 (Q-12)) apply 

through the later of the last day of the period during which any obligation to the Federal 

government arising from financial assistance provided under the TARP remains 

outstanding for TARP recipients with an obligation, or the last day of the TARP 

recipient’s fiscal year including the sunset date for a TARP recipient that has never had 

an obligation. For this purpose, an obligation includes the ownership by the Federal 

government of common stock of a TARP recipient. 

§30.3 Q-3: How are the SEOs and most highly compensated employees identified 

for purposes of compliance with this part?

 (a) Identification. The SEOs for a year are the “named executive officers” who 

are employees and are identified in the TARP recipient’s annual report on Form 10-K or 

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annual meeting proxy statement for that year (reporting the SEOs’ compensation for the 

immediately preceding year). These employees are considered the SEOs throughout that 

entire year. For purposes of the standards in this part applicable to the most highly 

compensated employees, the determination of whether an employee is a most highly 

compensated employee in a current fiscal year looks back to the annual compensation for 

the last completed fiscal year without regard to whether the compensation is includible in 

the employee’s gross income for federal income tax purposes. 

(b) Compliance. Regardless of when during the current fiscal year the TARP 

recipient determines the SEOs or the most highly compensated employees, the TARP 

recipient must ensure that any of the SEOs or employees potentially subject to the 

requirements in this part for the current fiscal year complies with the requirements in this 

part as applicable. 

§30.4 Q-4: What actions are necessary for a TARP recipient to comply with the 

standards established under sections 111(b)(3)(A), 111(b)(3)(E), 111(b)(3)(F) and 

111(c) of EESA (evaluation of employee plans and potential to encourage excessive 

risk or manipulation of earnings)?

(a) General rule. To comply with the standards established under sections 

111(b)(3)(A), 111(b)(3)(E), 111(b)(3)(F) and 111(c) of EESA, a TARP recipient must 

establish a compensation committee by the later of ninety days after the closing date of 

the agreement between the TARP recipient and Treasury or [INSERT DATE NINETY 

DAYS AFTER PUBLICATION], and maintain a compensation committee during the 

remainder of the TARP period. If a compensation committee is already established 

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before the later of the closing date or [INSERT DATE NINETY DAYS AFTER 

PUBLICATION], the TARP recipient must maintain its compensation committee. 

During the remainder of the TARP period after the later of ninety days after the closing 

date of the agreement between the TARP recipient and Treasury or [INSERT DATE 

NINETY DAYS AFTER PUBLICATION], the compensation committee must: 

(1) Discuss, evaluate, and review at least every six months with the TARP 

recipient’s senior risk officers the SEO compensation plans to ensure that the SEO 

compensation plans do not encourage SEOs to take unnecessary and excessive risks that 

threaten the value of the TARP recipient; 

(2) Discuss, evaluate, and review with senior risk officers at least every six 

months employee compensation plans in light of the risks posed to the TARP recipient by 

such plans and how to limit such risks; 

(3) Discuss, evaluate, and review at least every six months the employee 

compensation plans of the TARP recipient to ensure that these plans do not encourage the 

manipulation of reported earnings of the TARP recipient to enhance the compensation of 

any of the TARP recipient’s employees; 

(4) At least once per TARP recipient fiscal year, provide a narrative description of 

how the SEO compensation plans do not encourage the SEOs to take unnecessary and 

excessive risks that threaten the value of the TARP recipient, including how these SEO 

compensation plans do not encourage behavior focused on short-term results rather than 

long-term value creation, the risks posed by employee compensation plans and how these 

risks were limited, including how these employee compensation plans do not encourage 

behavior focused on short-term results rather than long-term value creation, and how the 

77
 

 

TARP recipient has ensured that the employee compensation plans do not encourage the 

manipulation of reported earnings of the TARP recipient to enhance the compensation of 

any of the TARP recipient’s employees; and 

(5) Certify the completion of the reviews of the SEO compensation plans and 

employee compensation plans required under paragraphs (a)(1), (2), and (3) of this 

section. 

(b) Exclusion of TARP recipients with no employees or no affected employees. 

For any period during which a TARP recipient has no employees, or has no SEO or 

compensation plan subject to the review process, the TARP recipient is not subject to the 

requirements of paragraph (a) of this section. 

(c) Application to private TARP recipients. The rules provided in paragraph (a) 

of this section are also applicable to TARP recipients that do not have securities 

registered with the SEC pursuant to the federal securities laws. A TARP recipient that 

does not have securities registered with the SEC pursuant to the federal securities laws 

and has received $25,000,000 or less in financial assistance is subject to paragraph (a) of 

this section, except that, in lieu of establishing and maintaining a compensation 

committee, such a TARP recipient is permitted to ensure that all the members of the 

board of directors carry out the duties of the compensation committee as described in 

paragraph (a) of this section. However, such a TARP recipient will be required to 

establish and maintain a compensation committee satisfying the requirements of 

paragraph (a) of this section for the first fiscal year following a fiscal year during which 

the TARP recipient either registers securities with the SEC pursuant to the federal 

78
 

 

securities laws or has received more than $25,000,000 in financial assistance, and during 

subsequent years of the TARP period. 

(d) Application to TARP recipients that have never had an outstanding 

obligation. For TARP recipients that have never had an outstanding obligation, only 

paragraphs (a)(2), (a)(4), (a)(5) (but for the narrative and certification requirements of 

(a)(4) and (a)(5), applied only to the requirements of paragraph (a)(2)), (b) and (c) of this 

§30.4 (Q-4) shall apply. 

§30.5 Q-5: How does a TARP recipient comply with the requirements under §30.4

(Q-4) of this part that the compensation committee discuss, evaluate, and review the 

SEO compensation plans and employee compensation plans to ensure that the SEO 

compensation plans do not encourage the SEOs to take unnecessary and excessive 

risks that threaten the value of the TARP recipient, or that the employee 

compensation plans do not pose unnecessary risks to the TARP recipient?

At least every six months, the compensation committee must discuss, evaluate, 

and review with the TARP recipient’s senior risk officers any risks (including long-term 

as well as short-term risks) that the TARP recipient faces that could threaten the value of 

the TARP recipient. The compensation committee must identify the features in the 

TARP recipient’s SEO compensation plans that could lead SEOs to take these risks and 

the features in the employee compensation plans that pose risks to the TARP recipient, 

including any features in the SEO compensation plans and the employee compensation 

plans that would encourage behavior focused on short-term results and not on long-term 

value creation. The compensation committed is required to limit these features to ensure 

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that the SEOs are not encouraged to take risks that are unnecessary or excessive and that 

the TARP recipient is not unnecessarily exposed to risks. 

§30.6 Q-6: How does a TARP recipient comply with the requirement under §30.4 

(Q-4) of this part that the compensation committee discuss, evaluate, and review the 

employee compensation plans to ensure that these plans do not encourage the 

manipulation of reported earnings of the TARP recipient to enhance the 

compensation of any of the TARP recipient’s employees?

The compensation committee must discuss, evaluate, and review at least every six 

months the terms of each employee compensation plan and identify and eliminate the 

features in these plans that could encourage the manipulation of reported earnings of the 

TARP recipient to enhance the compensation of any employee. 

§30.7 Q-7: How does a TARP recipient comply with the certification and disclosure 

requirements under §30.4 (Q-4) of this part?

(a) Certification. The compensation committee must provide the certifications 

required by §30.4 (Q-4) of this part stating that it has reviewed, with the TARP 

recipient’s senior risk officers, the SEO compensation plans to ensure that these plans do 

not encourage SEOs to take unnecessary and excessive risks, the employee 

compensation plans to limit any unnecessary risks these plans pose to the TARP 

recipient, and the employee compensation plans to eliminate any features of these plans 

that would encourage the manipulation of reported earnings of the TARP recipient to 

enhance the compensation of any employee. For any period during which no obligation 

80
 

 

arising from financial assistance provided under the TARP remains outstanding, the 

requirements under this paragraph shall be modified to be consistent with §30.4(d) (Q4(d)). Providing a statement similar to the following and in the manner provided in 

paragraphs (c) and (d) of this section, as applicable, would satisfy this standard: “The 

compensation committee certifies that: 

(1) It has reviewed with senior risk officers the senior executive officer (SEO) 

compensation plans and has made all reasonable efforts to ensure that these plans do not 

encourage SEOs to take unnecessary and excessive risks that threaten the value of 

[identify TARP recipient]; 

(2) It has reviewed with senior risk officers the employee compensation plans and 

has made all reasonable efforts to limit any unnecessary risks these plans pose to the 

[identify TARP recipient]; and 

(3) It has reviewed the employee compensation plans to eliminate any features of 

these plans that would encourage the manipulation of reported earnings of [identify 

TARP recipient] to enhance the compensation of any employee.” 

(b) Disclosure. At least once per TARP recipient fiscal year, the compensation 

committee must provide a narrative description identifying each SEO compensation plan 

and explaining how the SEO compensation plan does not encourage the SEOs to take 

unnecessary and excessive risks that threaten the value of the TARP recipient. The 

compensation committee must also identify each employee compensation plan, explain 

how any unnecessary risks posed by the employee compensation plan have been limited, 

and further explain how the employee compensation plan does not encourage the 

manipulation of reported earnings to enhance the compensation of any employee. 

81
 

 

(c) Location. For TARP recipients with securities registered with the SEC 

pursuant to the federal securities law, the compensation committee must provide these 

certifications and disclosures in the Compensation Committee Report required pursuant 

to Item 407(e) of Regulation S-K under the federal securities laws (17 CFR 229.407(e)) 

and to Treasury. These disclosures must be provided in the Compensation Committee 

Report for any disclosure pertaining to any fiscal year any portion of which is a TARP 

period (for a TARP recipient with an obligation), or for any disclosure pertaining to any 

fiscal year including a date on or before the sunset date (for a TARP recipient that has 

never had an obligation). Within 120 days of the completion of a fiscal year during any 

part of which is a TARP period (for a TARP recipient with an obligation), or the 

completion of a fiscal year including a date on or before the sunset date (for a TARP 

recipient that has never had an obligation), a TARP recipient that is a smaller reporting 

company must provide the certifications of the compensation committee to its primary 

regulatory agency and to Treasury. 

(d) Application to private TARP recipients. The rules provided in paragraphs (a), 

(b), and (c) of this section are also applicable to TARP recipients that do not have 

securities registered with the SEC pursuant to the federal securities laws. Within 120 

days of the completion of the fiscal year during any part of which is a TARP period (for a 

TARP recipient with an obligation), or the completion of a fiscal year including a date on 

or before the sunset date (for a TARP recipient that has never had an obligation), a 

private TARP recipient must provide the certification of the compensation committee (or 

board of directors, as applicable under §30.4 (Q-4)) to its primary regulatory agency and 

to Treasury. 

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§30.8 Q-8: What actions are necessary for a TARP recipient to comply with the 

standards established under section 111(b)(3)(B) of EESA (the “clawback” 

provision requirement)?

To comply with the standards established under section 111(b)(3)(B) of EESA, a 

TARP recipient must ensure that any bonus payment made to a SEO or the next twenty 

most highly compensated employees during the TARP period is subject to a provision for 

recovery or “clawback” by the TARP recipient if the bonus payment was based on 

materially inaccurate financial statements (which includes, but is not limited to, 

statements of earnings, revenues, or gains) or any other materially inaccurate 

performance metric criteria. Whether a financial statement or performance metric criteria 

is materially inaccurate depends on all the facts and circumstances. However, for this 

purpose, a financial statement or performance metric criteria shall be treated as materially 

inaccurate with respect to any employee who knowingly engaged in providing inaccurate 

information (including knowingly failing to timely correct inaccurate information) 

relating to those financial statements or performance metrics. Otherwise, with respect to 

a performance criteria, whether the inaccurate measurement of the performance or 

inaccurate application of the performance to the performance criteria is material depends 

on whether the actual performance or accurate application of the actual performance to 

the performance criteria is materially different from the performance required under the 

performance criteria or the inaccurate application of the actual performance to the 

performance criteria. The TARP recipient must exercise its clawback rights except to the 

extent it demonstrates that it is unreasonable to do so, such as, for example, if the expense 

83
 

 

of enforcing the rights would exceed the amount recovered. For the purpose of this 

section, a bonus payment is deemed to be made to an individual when the individual 

obtains a legally binding right to that payment. 

§30.9 Q-9: What actions are necessary for a TARP recipient to comply with the 

standards established under section 111(b)(3)(C) of EESA (the prohibition on 

golden parachute payments)?

(a) Prohibition on golden parachute payments. To comply with the standards 

established under section 111(b)(3)(C) of EESA, a TARP recipient must prohibit any 

golden parachute payment to a SEO and any of the next five most highly compensated 

employees during the TARP period. A golden parachute payment is treated as paid at the 

time of departure and is equal to the aggregate present value of all payments made for a 

departure. Thus, a golden parachute payment during the TARP period may include a 

right to amounts actually payable after the TARP period. 

(b) Examples. The following examples illustrate the provisions of paragraph (a) 

of this section: 

Example 1. Employee A is a SEO of a TARP recipient. Employee A is entitled 

to a payment of three times his annual compensation upon an involuntary termination of 

employment or voluntary termination of employment for good reason, but such amount is 

not payable unless and until the TARP period expires with respect to TARP recipient. 

Employee A terminates employment during the TARP period. Because, for purposes of 

the prohibition on golden parachute payments, the payment is made at the time of 

departure, Employee A may not obtain the right to the payment upon the termination of 

employment. 

Example 2. Employee B involuntarily terminated employment on July 1, 2008, at 

which time Employee B was a SEO of a financial institution. Employee B’s employment 

agreement provided that if Employee B were involuntarily terminated or voluntarily 

terminated employment for good reason, Employee B would be entitled to a series of five 

equal annual payments. After the first payment, but before any subsequent payment, the 

84
 

 

entity became a TARP recipient. Because, for purposes of the prohibition on golden 

parachute payments, all of the five payments are deemed to have occurred at termination 

of employment and because, in this case, termination of employment occurred before the 

beginning of the applicable TARP period, the payment of the four remaining payments 

due under the agreement will not violate the requirements of this section. 

§30.10 Q-10: What actions are necessary for a TARP recipient to comply with 

section 111(b)(3)(D) of EESA (the limitations on bonus payments)?

(a) General rule. To comply with section 111(b)(3)(D) of EESA, pursuant to the 

schedule under paragraph (b) of this section and subject to the exclusions under 

paragraph (e) of this section, a TARP recipient must prohibit the payment or accrual of 

any bonus payment during the TARP period to or by the employees identified pursuant to 

paragraph (b) of this section. 

(b)(1) Schedule. The prohibition required under paragraph (a) of this section 

applies as follows to: 

 (i) The most highly compensated employee of any TARP recipient receiving less 

than $25,000,000 in financial assistance; 

 (ii) At least the five most highly compensated employees of any TARP recipient 

receiving $25,000,000 but less than $250,000,000 in financial assistance; 

 (iii) The SEOs and at least the ten next most highly compensated employees of 

any TARP recipient receiving $250,000,000 but less than $500,000,000 in financial 

assistance; and 

 (iv) The SEOs and at least the twenty next most highly compensated employees 

of any TARP recipient receiving $500,000,000 or more in financial assistance. 

(2) Changes in level of financial assistance. The determination of which schedule 

in paragraph (b) of this section is applicable to a TARP recipient during the TARP period 

85
 

 

is determined by the gross amount of all financial assistance provided to the TARP 

recipient, valued at the time the financial assistance was received. Whether a TARP 

recipient’s financial assistance has increased during a fiscal year to the point in the 

schedule under paragraph (b) of this section that the SEOs or a greater number of the 

most highly compensated employees will be subject to the requirements under paragraph 

(a) of this section is determined as of the last day of the TARP recipient’s fiscal year, and 

the increase in coverage is effective for the subsequent fiscal year. 

(3) Application to first year of financial assistance. For employers who become 

TARP recipients after [INSERT DATE OF PUBLICATION IN THE FEDERAL 

REGISTER], the bonus payment limitation provision under this paragraph (b) does not 

apply to bonus payments paid or accrued by TARP recipients or their employees before 

the first date of the TARP period. Certain bonus payments may relate to a service period 

beginning before and ending after the first date of the TARP period. In these 

circumstances, the employee will not be treated as having accrued the bonus payment on 

or after the first date of the TARP period if the bonus payment is reduced to reflect at 

least the portion of the service period that occurs on or after the first date of the TARP 

period. However, if the employee is a SEO or most highly compensated employee at the 

time the amount would otherwise be paid, the bonus payment amount as reduced in 

accordance with the previous sentence still may not be paid until such time as bonus 

payments to that employee are permitted. 

(c) Accrual. (1) General rule. Whether an employee has accrued a bonus payment 

is determined based on the facts and circumstances. An accrual may include the granting 

of service credit (whether toward the calculation of the benefit or any vesting 

86
 

 

requirement) or credit for the compensation received (or that otherwise would have been 

received) during the period the employee was subject to the restriction under paragraph 

(a) of this section. For application of this rule to the fiscal year including [INSERT 

DATE OF PUBLICATION IN THE FEDERAL REGISTER], see §30.17 (Q-17). 

(2) Payments or accruals after the employee is no longer a SEO or most highly 

compensated employee. If after the employee is no longer a SEO or most highly 

compensated employee, the employee is paid a bonus payment or provided a legally 

binding right to a bonus payment that is based upon services performed or compensation 

received during the period the employee was a SEO or most highly compensated 

employee, the employee will be treated as having accrued such bonus payment during the 

period the employee was a SEO or most highly compensated employee. For example, if 

the employee is retroactively granted service credit under an incentive plan (whether for 

vesting or benefit calculation purposes) for the period in which the employee was a SEO 

or most highly compensated employee, the employee will be treated as having accrued 

that benefit during the period the employee was a SEO or most highly compensated 

employee. 

(3) Multi-year service periods. Certain bonus payments may relate to a multiyear service period, during some portion of which the employee is a SEO or most highly 

compensated employee subject to paragraph (a) of this section, and during some portion 

of which the employee is not. In these circumstances, the employee will not be treated as 

having accrued the bonus payment during the period the employee was a SEO or most 

highly compensated employee if the bonus payment is at least reduced to reflect the 

portion of the service period that the employee was a SEO or most highly compensated 

87
 

 

employee. If the employee is a SEO or most highly compensated employee at the time 

the net bonus payment amount after such reduction would otherwise be paid, the amount 

still may not be paid until such time as bonus payments to that employee are permitted. 

(d) Examples. The following examples illustrate the rules of paragraphs (a) 

through (c) of this section: 

Example 1. Employee A is a SEO of a TARP recipient in 2010, but not in 2011. 

The TARP recipient maintains an annual bonus program, generally paying bonus 

payments in March of the following year. Employee A may not be paid a bonus payment 

in 2010 (for services performed in 2009 or any other year). In addition, Employee A may 

not be paid a bonus payment in 2011 to the extent such bonus payment is based on 

services performed in 2010. 

Example 2. Same facts as in Example 1, provided further that Employee A 

receives a salary increase for 2011. The salary increase equals the same percentage as 

similarly situated executive officers, with an additional percentage increase which, over 

the course of twelve months, equals the bonus that would have been payable to Employee 

A in 2011 (for services performed in 2010), except for application of paragraph (a) of this 

section. Under these facts and circumstances, the additional percentage increase will be 

treated as a bonus payment accrued in 2010 and Employee A may not be paid this bonus 

payment. 

Example 3. Same facts as in Example 1, provided further that on March 1, 2011, 

Employee A is granted a stock option under the TARP recipient stock incentive plan with 

a value approximately equal to the bonus that would have been payable to Employee A in 

2011 (for services performed in 2010), except for application of paragraph (a) of this 

section. Other similarly situated employee not covered by the bonus limitation for 2010 

do not receive such a grant. Under these facts and circumstances, the stock option grant 

will be treated as a bonus payment accrued in 2010 and will not be permitted to be paid to 

Employee A. 

Example 4. Employee B is not a SEO or a most highly compensated employee of 

a TARP recipient during 2009. On July 1, 2009, Employee B is granted the right to a 

bonus payment of $50,000 if Employee B is employed by the TARP recipient through 

July 1, 2011 (two years). Employee B is a SEO of a TARP recipient during 2010, but is 

not a SEO or a most highly compensated employee of the TARP recipient during 2011. 

Employee B is employed by the TARP recipient on July 1, 2011. Thus, Employee B was 

a SEO or most highly compensated employee during one-half of the two-year required 

service period. Provided that Employee B is paid not more than half of the otherwise 

payable bonus payment, or $25,000, Employee B will not be treated as having accrued a 

bonus payment while Employee B was a SEO or a most highly compensated employee. 

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 (e) Exclusions. (1) Long-term restricted stock. (i) General rule. The TARP 

recipient is permitted to award long-term restricted stock to the employees whose 

compensation is limited according to the schedule under paragraph (b) of this section, 

provided that the value of this grant may not exceed one third of the employee’s annual 

compensation as determined for that fiscal year (that is, not using the look-back method 

for the prior year). For purposes of this paragraph, in determining an employee’s annual 

compensation, all equity-based compensation granted in fiscal years ending after 

[INSERT DATE OF PUBLICATION IN THE FEDERAL REGISTER] will only be 

included in the calculation in the year in which it is granted at its total fair market value 

on the grant date, and all equity-based compensation granted in fiscal years ending prior 

to [INSERT DATE OF PUBLICATION IN THE FEDERAL REGISTER] will not be 

included in the calculation of annual compensation for any subsequent fiscal year. For 

purposes of this paragraph, in determining the value of the long-term restricted stock 

grant, the long-term restricted stock granted in accordance with this paragraph will only 

be included in the calculation in the year in which the restricted stock is granted at its 

total fair market value on the grant date. 

 (ii) Example. During 2008, Employee A receives compensation of $1 million 

salary and a $1,200,000 long-term restricted stock grant subject to a three-year vesting 

period. During 2009, Employee A received compensation of $1 million salary and no 

grant of long-term restricted stock. During 2010, Employee A receives compensation of 

$600,000 salary and a $300,000 long-term restricted stock grant subject to a three-year 

vesting period. Under the general SEC compensation disclosure rules used to define 

annual compensation in §30.1 (Q-1) of this part, the compensation related to the longterm restricted stock grants would be allocated over the vesting period. Assume for this 

purpose, that for 2010, $400,000 of the 2008 long-term restricted stock grant is allocated 

as compensation, and $100,000 of the 2010 long-term restricted stock grant is allocated 

as compensation, so that the total annual compensation is $1,100,000 ($600,000 salary + 

$400,000 + $100,000). However, for purposes of determining Employee A’s annual 

compensation to apply the limit on the value of the long-term restricted stock that may be 

granted to Employee A in 2010, the entire $300,000 value of the 2010 grant is included 

89
 

 

but the $400,000 value attributed to the 2008 grant is excluded. Accordingly, Employee 

A’s adjusted annual compensation is $900,000 ($1,100,000 - $100,000 + $300,000 - 

$400,000). In addition, the entire fair market value of the 2010 long-term restricted stock 

grant is included for purposes of determining whether the limit has been exceeded. 

Because the $300,000 adjusted value of the long-term restricted stock grant does not 

exceed one-third of the $900,000 adjusted annual compensation, the grant complies with 

paragraph (e)(1)(i). 

 (2) Legally binding right under valid employment contracts. (i) General rule. 

The prohibition under paragraph (a) of this section does not apply to bonus payments 

required to be paid under a valid employment contract if the employee had a legally 

binding right under the contract to a bonus payment as of February 11, 2009. For 

purposes of determining whether an employee had a legally binding right to a bonus 

payment, see 26 CFR 1.409A-1(b)(i). In addition, the bonus payment must be made in 

accordance with the terms of the contract as of February 11, 2009 (which may include 

application of an elective deferral election under a qualified retirement plan or a 

nonqualified deferred compensation plan), such that any subsequent amendment to the 

contract to increase the amount payable, accelerate any vesting conditions, or otherwise 

materially enhance the benefit available to the employee under the contract will result in 

the bonus payment being treated as not made under the employment contract executed on 

or before February 11, 2009. However, amendment of a valid employment contract 

executed on or before February 11, 2009 under which an employee has a legally binding 

right to a bonus payment to reduce the amount of the bonus payment or to enhance or 

include service-based or performance-based vesting requirements or holding period 

requirements will not result in this treatment. The amended employment contract would 

still be deemed a valid employment contract and the employee would still be treated as 

having a legally binding right to the bonus payment under the original employment 

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contract. The TARP recipient and the employees of the TARP recipient should be 

cognizant of the restrictions under section 409A of the Internal Revenue Code (26 U.S.C. 

409A) in the case of an amendment described in the preceding sentence. 

 (ii) Examples. The following examples illustrate the provisions of this 

paragraph (2). 

 Example 1. TARP recipient sponsors a written restricted stock unit plan. Under 

the plan, restricted stock units are traditionally granted each July 1, and are subject to a 

three-year vesting requirement. Employee A, a SEO of TARP recipient, received grants 

on July 1, 2007, July 1, 2008, and July 1, 2009. The July 1, 2007 and July 1, 2008 grants 

are excluded from the limitation on payments, because although the awards were subject 

to a continuing service vesting requirement, Employee A retained a legally binding right 

to the restricted stock units as of February 11, 2009. However, regardless of the fact that 

the restricted stock unit program was in existence on February 11, 2009, Employee A did 

not retain a legally binding right to a restricted stock unit for 2009 as of February 11, 

2009, but rather obtained the legally binding right only when the restricted stock unit was 

granted on July 1, 2009. Accordingly, the July 1, 2009 grant is subject to the limitation 

and is not permitted to be accrued or paid (unless such grant complies with the exception 

for certain grants of long-term restricted stock). 

 Example 2. TARP recipient sponsors an annual bonus program documented in a 

written plan. Under the bonus program, the board of directors retains the discretion to 

eliminate or reduce the bonus of any employee in the bonus pool. Employees B and C, 

both SEOs, are in the bonus pool for 2008. On January 15, 2009, the compensation 

committee determines the bonuses to which the employees of the division in which 

Employee B works are entitled, and awards Employee B a $10,000 bonus payable on 

June 1. Employee B has a legally binding right to the bonus as of February 11, 2009 and 

payment of the bonus is not subject to the limitation. However, as of February 11, 2009, 

the board of directors has not met to determine which employees of the division in which 

Employee C works will be entitled to a bonus or the amount of such bonus. Accordingly, 

Employee C did not have a legally binding right to a bonus as of February 11, 2009 and 

may be subject to the bonus payment limitation. 

 Example 3. TARP recipient sponsors a written stock option plan under which 

stock options may be granted to SEOs designated by the compensation committee. 

Designations and grants typically occur at a meeting in August of every year, and no 

meeting occurred in 2009 before August. Regardless of the existence of the general plan, 

no SEO had a legally binding right to a stock option grant for 2009 as of February 11, 

2009 because no grants had been made under the plan. Accordingly, any 2009 grant will 

be subject to the limitation and is not permitted to be made. 

 Example 4. Employee D is a SEO of a TARP recipient. Under Employee D’s 

written employment agreement executed before February 11, 2009, Employee D is 

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entitled to the total of whatever bonuses are made available to Employee E and Employee 

F. As of February 11, 2009, Employee E had a legally binding right to a $100,000 bonus. 

Employees E and F are never at any time SEOs or highly compensated employees subject 

to the limitation. As of February 11, 2009, Employee F had no legally binding right to a 

bonus, but was eligible to participate in a bonus pool and was ultimately awarded a bonus 

of $50,000. As of February 11, 2009, Employee D had a legally binding right to a 

$100,000 bonus, so that bonus is not subject to the limitation. However, as of February 

11, 2009, Employee D did not have a legally binding right to the additional $50,000 

bonus, so that bonus is subject to the bonus payment limitation and, if not paid before 

[INSERT DATE OF PUBLICATION IN THE FEDERAL REGISTER] is not permitted 

to be paid. 

 

(f) Application to private TARP recipients. The rules set forth in this section are 

also applicable to TARP recipients that do not have securities registered with the SEC 

pursuant to the federal securities laws. 

§30.11 Q-11: Are TARP recipient required to meet any other standards under the 

executive compensation and corporate governance standards in section 111 of 

EESA?

(a) Approval of compensation payments to, and compensation structures for, 

certain employees of TARP recipients receiving exceptional financial assistance. For any 

period during which a TARP recipient is designated as a TARP recipient that has 

received exceptional financial assistance, the TARP recipient must obtain the approval by 

the Special Master of all compensation payments to, and compensation structures for, 

SEOs and most highly compensated employees subject to paragraph (b) of §30.10 (Q10). TARP recipients that receive exception financial assistance must also receive 

approval by the Special Master for all compensation structures for other employees who 

are executive officers (as defined under the Securities and Exchange Act, Rule 3b-7) or 

one of the 100 most highly compensated employees of a TARP recipient receiving 

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exceptional assistance (or both), who are not subject to the bonus limitations under 

§30.10 (Q-10). For this purpose, compensation payments and compensation structures 

may include awards or other rights to compensation which an employee has already 

received but not yet been paid or, in some instances, fully accrued. Accordingly, the 

Special Master has the authority to require that such compensation payments or 

compensation structures be altered to meet the standards set forth in §30.16 (Q-16). 

However, this approval requirement is not applicable to payments that are not subject to 

paragraph (a) of §30.10 (Q-10) due to the application of paragraph (e)(2) of §30.10 (Q10) or the effective date provisions of §30.17 (Q-17), though the Special Master will take 

such payments into account in reviewing the compensation structure and amounts 

payable, as applicable, that are subject to review. Notwithstanding any of the forgoing, 

approval is not required with respect to an employees not subject to the bonus payment 

limitations to the extent that the employee’s annual compensation, as modified in §30.16 

(Q-16) to include certain deferred compensation and pension accruals but to disregard 

any grant of long-term restricted stock, is limited to $500,000 or less, and any further 

compensation is provided in the form of long-term restricted stock. For details, see 

§30.16 (Q-16). 

(b) Perquisite disclosure. (1) General rule. TARP recipients must annually 

disclose during the TARP period any perquisite whose total value for the TARP 

recipient’s fiscal year exceeds $25,000 for each of the SEOs and most highly 

compensated employees that are subject to paragraph (a) of §30.10 (Q-10). TARP 

recipients must provide a narrative description of the amount and nature of these 

perquisites, the recipient of these perquisites, and a justification for offering these 

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perquisites (including a justification for offering the perquisite, and not only for offering 

the perquisite with a value that exceeds $25,000). Such disclosure must be provided 

within 120 days of the completion of a fiscal year any part of which is a TARP period. 

 (2) Location. A TARP recipient must provide this disclosure to Treasury and to 

its primary regulatory agency. 

(c) Compensation consultant disclosure. (1) General rule. The compensation 

committee of the TARP recipient must provide annually a narrative description of 

whether the TARP recipient, the board of directors of the TARP recipient, or the 

compensation committee has engaged a compensation consultant; and all types of 

services, including non-compensation related services, the compensation consultant or 

any of its affiliates has provided to the TARP recipient, the board, or the compensation 

committee during the past three years, including any “benchmarking” or comparisons 

employed to identify certain percentile levels of compensation (for example, entities used 

for benchmarking and a justification for using these entities and the lowest percentile 

level proposed for compensation). Such disclosure must be provided within 120 days of 

the completion of a fiscal year any part of which is a TARP period. 

(2) Application to TARP recipients not required to maintain compensation 

committees. For those TARP recipients not required to establish and maintain 

compensation committees under §30.4(c) (Q-4), the board of directors must provide the 

disclosure under §30.4(c)(1). 

(3) Location. A TARP recipient must provide this disclosure to Treasury and to 

its primary regulatory agency. 

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(d) Prohibition on gross-ups. Except as explicitly permitted under this part, 

TARP recipients are prohibited from providing (formally or informally) gross-ups to any 

of the SEOs and next twenty most highly compensated employees during the TARP 

period. For this purpose, providing a gross-up includes providing a right to a payment of 

such a gross-up at a future date, for example a date after the TARP period. 

§30.12 Q-12: What actions are necessary for a TARP recipient to comply with 

section 111(d) of EESA (the excessive or luxury expenditures policy requirement)? 

To comply with section 111(d) of EESA, by the later of ninety days after the 

closing date of the agreement between the TARP recipient and Treasury or [INSERT 

DATE NINETY DAYS AFTER PUBLICATION], the board of directors of the TARP 

recipient must adopt an excessive or luxury expenditures policy, provide this policy to 

Treasury and its primary regulatory agency, and post the text of this policy on its Internet 

website, if the TARP recipient maintains a company website. After adoption of the 

policy, the TARP recipient must maintain the policy during the remaining TARP period 

(if the TARP recipient has an obligation), or through the last day of the TARP recipient’s 

fiscal year including the sunset date (if the TARP recipient has never had an obligation). 

If, after adopting an excessive or luxury expenditures policy, the board of directors of the 

TARP recipient makes any material amendments to this policy, within ninety days of the 

adoption of the amended policy, the board of directors must provide the amended policy 

to Treasury and its primary regulatory agency and post the amended policy on its Internet 

website, if the TARP recipient maintains a company website. This disclosure must 

continue through the TARP period (if the TARP recipient has an obligation), or through 

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the last day of the TARP recipient’s fiscal year that includes the sunset date (if the TARP 

recipient has never had an obligation). 

§30.13 Q-13: What actions are necessary for a TARP recipient to comply with 

section 111(e) of EESA (the shareholder resolution on executive compensation 

requirement)?

(a) General rule. As provided in section 111(e) of EESA, any proxy or consent or 

authorization for an annual or other meeting of the shareholders of any TARP recipient 

that occurs during the TARP period must permit a separate shareholder vote to approve 

the compensation of executives, as required to be disclosed pursuant to the federal 

securities laws (including the compensation discussion and analysis, the compensation 

tables, and any related material). To meet this standard, a TARP recipient must comply 

with any rules, regulations, or guidance promulgated by the SEC. 

 

§30.14 Q-14: How does section 111 of EESA operate in connection with an 

acquisition, merger, or reorganization? 

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

TARP recipient (target) is acquired by an entity that is not an affiliate of the target 

(acquirer) in an acquisition of any form, including a purchase of substantially all of the 

assets of the target, such that the acquirer after the transaction would have been treated as 

a TARP recipient if the target had received the TARP funds immediately after the 

transaction, acquirer will not become subject to section 111 of EESA merely as a result of 

the acquisition. If the acquirer is not subject to section 111 of EESA immediately after 

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the transaction, then any employees of the acquirer immediately after the transaction 

(including target employees who were SEOs or most highly compensated employees 

immediately prior to the transaction and became acquirer employees as a result of the 

transaction) will not be subject to section 111 of EESA. 

(b) Anti-abuse rule. Notwithstanding the provisions of paragraph (a) of this 

section, if the primary purpose of a transaction involving the acquisition, in any form, of 

a TARP recipient is to avoid or evade the application of any of the requirements of 

section 111 of EESA, the acquirer will be treated as a TARP recipient immediately upon 

such acquisition. In such a case, the SEOs and the most highly compensated employees 

to whom any of the requirements of section 111 of EESA and this Interim Final Rule 

apply shall be redetermined as of the date of the acquisition. The redetermined SEOs and 

most highly compensated employees of the post-acquisition acquirer shall consist of the 

PEO and PFO of the post-acquisition acquirer, plus the applicable number of next most 

highly compensated employees determined by aggregating the post-acquisition 

employees of the acquirer (to include the pre-acquisition employees of the target 

employed by the acquirer, or anticipated to be employed by the acquirer), and ranking 

such employees in order of compensation for the immediately preceding fiscal year of the 

pre-acquisition target or pre-acquisition acquirer, as appropriate. In the case of an asset 

acquisition, the entity or entities to whom the target’s assets are transferred shall be 

treated as the direct recipient of the financial assistance for purposes of determining 

which other related entities are treated, in the aggregate, as the TARP recipient under the 

definition of “TARP recipient” in §30.1 (Q-1). 

 

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§30.15 Q-15: What actions are necessary for a TARP recipient to comply with 

certification requirements of section 111(b)(4) of EESA? 

(a) Certification Requirements. (1) General. To comply with section 111(b)(4) of 

EESA, the PEO and the PFO of the TARP recipient must provide the following 

certifications with respect to the compliance of the TARP recipient with section 111 of 

EESA as implemented under this part: 

 (2) First Fiscal Year Certification. (i) Within ninety days of the completion of the 

first annual fiscal year of the TARP recipient any portion of which is a TARP period, the 

PEO and the PFO of the TARP recipient must provide certifications similar to the model 

provided in appendix A to this section. 

(ii) If the first annual fiscal year of a TARP recipient any portion of which is a 

TARP period ends within thirty days after the closing date of the applicable agreement 

between the TARP recipient and Treasury, the TARP recipient shall have an additional 

sixty days beginning on the day after the end of the fiscal year during which it can 

establish the compensation committee, if not already established, and during which the 

compensation committee shall meet with senior risk officers to discuss, review, and 

evaluate the SEO compensation plans and employee compensation plans in accordance 

with §30.4 (Q-4) of this part. The certifications of the PEO and the PFO of the TARP 

recipient must be amended to reflect the timing of the establishment and reviews of the 

compensation committee. 

(3) Years Following First Fiscal Year Certification. Within ninety days of the 

completion of each TARP fiscal year of the TARP recipient after the first TARP fiscal 

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year, the PEO and the PFO of the TARP recipient must provide a certification similar to 

the model provided in Appendix B to this section. 

(4) Location. A TARP recipient with securities registered with the SEC pursuant 

to the federal securities law must provide these certifications as an exhibit (pursuant to 

Item 601(b)(99)(i) of Regulation S-K under the federal securities laws (17 CFR 

229.601(b)(99)(i)) to the TARP recipient’s annual report on Form 10-K and to Treasury. 

To the extent that the PEO or the PFO of the TARP recipient is unable to provide any of 

these certifications in a timely manner, the PEO or the PFO must provide Treasury an 

explanation of the reason such certification has not been provided. These certifications 

are in addition to the compensation committee certifications required by §30.5 (Q-5) of 

this part. 

(5) Application to private TARP recipients. The rules provided in this section are 

also applicable to TARP recipients that do not have securities registered with the SEC 

pursuant to the federal securities laws, except the certifications under paragraphs (a)(2)(x) 

and (a)(3)(x) of this section are not required. A private TARP recipient must provide 

these certifications to its primary regulatory agency and to Treasury. 

(6) Application to TARP recipients that have never had an obligation. For those 

TARP recipients that have never had an obligation, the PEO and PFO must provide the 

certifications pursuant to this paragraph (a) only with respect to the requirements 

applicable to a TARP recipient that has never had an obligation (generally certain 

compensation committee reviews of employee compensation plans and the issuance of, 

and compliance with, an excessive or luxury expenses policy). 

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(b) Recordkeeping requirements. The TARP recipient must preserve appropriate 

documentation and records to substantiate each certification required under paragraph (a) 

of this section for a period of not less than six years after the date of the certification, the 

first two years in an easily accessible place. The TARP recipient must furnish promptly 

to Treasury legible, true, complete, and current copies of the documentation and records 

that are required to be preserved under paragraph (b) of this section that are requested by 

any representative of Treasury. 

(c) Penalties for making or providing false or fraudulent Statements. Any 

individual or entity that provides information or makes a certification to Treasury 

pursuant to the Interim Final Rule or as required pursuant to 31 CFR Part 30 may be 

subject to 18 U.S.C. 1001, which generally prohibits the making of any false or 

fraudulent statement in a matter within the jurisdiction of the federal government. Upon 

receipt of information indicating that any individual or entity has violated any provision 

of title 18 of the U.S. Code or other provision of federal law, Treasury shall refer such 

information to the Department of Justice and the Special Inspector General for the 

Troubled Asset Relief Program. 

Appendix A to § 30.15 – Model Certification for First Fiscal Year Certification

“I, [identify certifying individual], certify, based on my knowledge, that: 

(i) The compensation committee of [identify TARP recipient] has discussed, 

reviewed, and evaluated with senior risk officers at least every six months during the 

period beginning on the later of the closing date of the agreement between the TARP 

recipient and Treasury or [INSERT DATE OF PUBLICATION IN THE FEDERAL 

REGISTER] and ending with the last day of the TARP recipient’s fiscal year containing 

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that date, senior executive officer (SEO) compensation plans and employee compensation 

plans and the risks these plans pose to [identify TARP recipient]; 

(ii) The compensation committee of [identify TARP recipient] has identified and 

limited during the period beginning on the later of the closing date of the agreement 

between the TARP recipient and Treasury or [INSERT DATE OF PUBLICATION IN 

THE FEDERAL REGISTER] and ending with the last day of the TARP recipient’s fiscal 

year containing that date, the features in the SEO compensation plans that could lead 

SEOs to take unnecessary and excessive risks that could threaten the value of [identify 

TARP recipient] and identified any features in the employee compensation plans that 

pose risks to [identify TARP recipient] and limited those features to ensure that [identify 

TARP recipient] is not unnecessarily exposed to risks; 

(iii) The compensation committee has reviewed at least every six months during 

the period beginning on the later of the closing date of the agreement between the TARP 

recipient and Treasury or [INSERT DATE OF PUBLICATION IN THE FEDERAL 

REGISTER] and ending with the last day of the TARP recipient’s fiscal year containing 

that date, the terms of each employee compensation plan and identified the features in the 

plan that could encourage the manipulation of reported earnings of [identify TARP 

recipient] to enhance the compensation of an employee and has limited those features; 

(iv) The compensation committee of [identify TARP recipient] will certify to the 

reviews of the SEO compensation plans and employee compensation plans required 

under (i) and (iii) above; 

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(v) The compensation committee of [identify TARP recipient] will provide a 

narrative description of how it limited during any part of the most recently completed 

fiscal year that included a TARP period the features in 

(A) SEO compensation plans that could lead SEOs to take unnecessary and 

excessive risks that could threaten the value of [identify TARP recipient]; 

(B) Employee compensation plans that unnecessarily expose [identify TARP 

recipient] to risks; and 

(C) Employee compensation plans that could encourage the manipulation of 

reported earnings of [identify TARP recipient] to enhance the compensation of an 

employee; 

(vi) [Identify TARP recipient] has required that bonus payments, as defined in the 

regulations and guidance established under section 111 of EESA (bonus payments), of 

the SEOs and twenty next most highly compensated employees be subject to a recovery 

or “clawback” provision during any part of the most recently completed fiscal year that 

was a TARP period if the bonus payments were based on materially inaccurate financial 

statements or any other materially inaccurate performance metric criteria; 

(vii) [Identify TARP recipient] has prohibited any golden parachute payment, as 

defined in the regulations and guidance established under section 111 of EESA, to a SEO 

or any of the next five most highly compensated employees during the period beginning 

on the later of the closing date of the agreement between the TARP recipient and 

Treasury or [INSERT DATE OF PUBLICATION IN THE FEDERAL REGISTER] and 

ending with the last day of the TARP recipient’s fiscal year containing that date; 

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(viii) [Identify TARP recipient] has limited bonus payments to its applicable 

employees in accordance with section 111 of EESA and the regulations and guidance 

established thereunder during the period beginning on the later of the closing date of the 

agreement between the TARP recipient and Treasury or [INSERT DATE OF 

PUBLICATION IN THE FEDERAL REGISTER] and ending with the last day of the 

TARP recipient’s fiscal year containing that date, [for recipients of exceptional 

assistance: and has received or is in the process of receiving approvals from the Office of 

the Special Master for TARP Executive Compensation for compensation payments and 

structures as required under the regulations and guidance established under section 111 of 

EESA, and has not made any payments inconsistent with those approved payments and 

structures]; 

(ix) The board of directors of [identify TARP recipient] has established an 

excessive or luxury expenditures policy, as defined in the regulations and guidance 

established under section 111 of EESA, has provided this policy to Treasury and its 

primary regulatory agency, and [identify TARP recipient] and its employees have 

complied with this policy during the period beginning on the later of the closing date of 

the agreement between the TARP recipient and Treasury or [INSERT DATE OF 

PUBLICATION IN THE FEDERAL REGISTER] and ending with the last day of the 

TARP recipient’s fiscal year containing that date, and that any expenses requiring 

approval of the board of directors, a committee of the board of directors, an SEO, or an 

executive officer with a similar level of responsibility, were properly approved; 

(x) [Identify TARP recipient] will permit a non-binding shareholder resolution in 

compliance with any applicable federal securities rules and regulations on the disclosures 

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provided under the federal securities laws related to SEO compensation paid or accrued 

during the period beginning on the later of the closing date of the agreement between the 

TARP recipient and Treasury or [INSERT DATE OF PUBLICATION IN THE 

FEDERAL REGISTER] and ending with the last day of the TARP recipient’s fiscal year 

containing that date; 

(xi) [Identify TARP recipient] will disclose the amount, nature, and justification 

for the offering during the period beginning on the later of the closing date of the 

agreement between the TARP recipient and Treasury or [INSERT DATE OF 

PUBLICATION IN THE FEDERAL REGISTER] and ending with the last day of the 

TARP recipient’s fiscal year containing that date of any perquisites, as defined in the 

regulations and guidance established under section 111 of EESA, whose total value 

exceeds $25,000 for each employee subject to the bonus payment limitations identified in 

paragraph (vii); 

(xii) [Identify TARP recipient] will disclose whether [identify TARP recipient], 

the board of directors of [identify TARP recipient], or the compensation committee of 

[TARP recipient] has engaged during the period beginning on the later of the closing date 

of the agreement between the TARP recipient and Treasury or [INSERT DATE OF 

PUBLICATION IN THE FEDERAL REGISTER] and ending with the last day of the 

TARP recipient’s fiscal year containing that date, a compensation consultant; and the 

services the compensation consultant or any affiliate of the compensation consultant 

provided during this period; 

(xiii) [Identify TARP recipient] has prohibited the payment of any gross-ups, as 

defined in the regulations and guidance established under section 111 of EESA, to the 

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SEOs and the next twenty most highly compensated employees during the period 

beginning on the later of the closing date of the agreement between the TARP recipient 

and Treasury or [INSERT DATE OF PUBLICATION IN THE FEDERAL REGISTER] 

and ending with the last day of the TARP recipient’s fiscal year containing that date; 

(xiv) [Identify TARP recipient] has substantially complied with all other 

requirements related to employee compensation that are provided in the agreement 

between [identify TARP recipient] and Treasury, including any amendments; 

(xv) The following employees are the SEOs and the twenty next most highly 

compensated employees for the current fiscal year and the most recently completed fiscal 

year, with the non-SEOs ranked in order of level of annual compensation starting with 

the greatest amount: [identify name, title, and employer of each SEO and most highly 

compensated employee]; and 

(xvi) I understand that a knowing and willful false or fraudulent statement made 

in connection with this certification may be punished by fine, imprisonment, or both. 

(See, for example, 18 USC 1001).” 

Appendix B to § 30.15 – Model Certification for Years Following First Fiscal 

Year Certification

“I, [identify certifying individual], certify, based on my knowledge, that: 

(i) The compensation committee of [identify TARP recipient] has discussed, 

reviewed, and evaluated with senior risk officers at least every six months during any part 

of the most recently completed fiscal year that was a TARP period, senior executive 

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officer (SEO) compensation plans and employee compensation plans and the risks these 

plans pose to [identify TARP recipient].; 

(ii) The compensation committee of [identify TARP recipient] has identified and 

limited during any part of the most recently completed fiscal year that was a TARP 

period the features in the SEO compensation plans that could lead SEOs to take 

unnecessary and excessive risks that could threaten the value of [identify TARP 

recipient] and identified any features in the employee compensation plans that pose risks 

to [identify TARP recipient] and limited those features to ensure that [identify TARP 

recipient] is not unnecessarily exposed to risks; 

(iii) The compensation committee has reviewed at least every six months during 

any part of the most recently completed fiscal year that was a TARP period the terms of 

each employee compensation plan and identified the features in the plan that could 

encourage the manipulation of reported earnings of [identify TARP recipient] to enhance 

the compensation of an employee and has limited these features that would encourage the 

manipulation of reported earnings of [identify TARP recipient]; 

(iv) The compensation committee of [identify TARP recipient] will certify to the 

reviews of the SEO compensation plans and employee compensation plans required 

under (i) and (iii) above; 

(v) The compensation committee of [identify TARP recipient] will provide a 

narrative description of how it limited during any part of the most recently completed 

fiscal year that was a TARP period the features in 

(A) SEO compensation plans that could lead SEOs to take unnecessary and 

excessive risks that could threaten the value of [identify TARP recipient]; 

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(B) Employee compensation plans that unnecessarily expose [identify TARP 

recipient] to risks; and 

(C) Employee compensation plans that could encourage the manipulation of 

reported earnings of [identify TARP recipient] to enhance the compensation of an 

employee; 

(vi) [Identify TARP recipient] has required that bonus payments to SEOs or any 

of the next twenty most highly compensated employees, as defined in the regulations and 

guidance established under section 111 of EESA (bonus payments), be subject to a 

recovery or “clawback” provision during any part of the most recently completed fiscal 

year that was a TARP period if the bonus payments were based on materially inaccurate 

financial statements or any other materially inaccurate performance metric criteria; 

 (vii) [Identify TARP recipient] has prohibited any golden parachute payment, as 

defined in the regulations and guidance established under section 111 of EESA, to a SEO 

or any of the next five most highly compensated employees during any part of the most 

recently completed fiscal year that was a TARP period; 

(viii) [Identify TARP recipient] has limited bonus payments to its applicable 

employees in accordance with section 111 of EESA and the regulations and guidance 

established thereunder during any part of the most recently completed fiscal year that was 

a TARP period [for recipients of exceptional assistance: and has received or is in the 

process of receiving approvals from the Office of the Special Master for TARP Executive 

Compensation for compensation payments and structures as required under the 

regulations and guidance established under section 111 of EESA, and has not made any 

payments inconsistent with those approved payments and structures]; 

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(ix) [Identify TARP recipient] and its employees have complied with the 

excessive or luxury expenditures policy, as defined in the regulations and guidance 

established under section 111 of EESA, during any part of the most recently completed 

fiscal year that was a TARP period, and that any expenses requiring approval of the board 

of directors, a committee of the board of directors, an SEO, or an executive officer with a 

similar level of responsibility, were properly approved; 

(x) [Identify TARP recipient] will permit a non-binding shareholder resolution in 

compliance with any applicable federal securities rules and regulations on the disclosures 

provided under the federal securities laws related to SEO compensation paid or accrued 

during any part of the most recently completed fiscal year that was a TARP period; 

(xi) [Identify TARP recipient] will disclose the amount, nature, and justification 

for the offering during any part of the most recently completed fiscal year that was a 

TARP period of any perquisites, as defined in the regulations and guidance established 

under section 111 of EESA, whose total value exceeds $25,000 for for each employee 

subject to the bonus payment limitations identified in paragraph (viii); 

(xii) [Identify TARP recipient] will disclose whether [identify TARP recipient], 

the board of directors of [identify TARP recipient], or the compensation committee of 

[identify TARP recipient] has engaged during any part of the most recently completed 

fiscal year that was a TARP period a compensation consultant; and the services the 

compensation consultant or any affiliate of the compensation consultant provided during 

this period; 

(xiii) [Identify TARP recipient] has prohibited the payment of any gross-ups, as 

defined in the regulations and guidance established under section 111 of EESA, to the 

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SEOs and the next twenty most highly compensated employees during any part of the 

most recently completed fiscal year that was a TARP period; 

(xiv) [Identify TARP recipient] has substantially complied with all other 

requirements related to employee compensation that are provided in the agreement 

between [identify TARP recipient] and Treasury, including any amendments; 

(xv) The following employees are the SEOs and the twenty most highly 

compensated employees for the current fiscal year, with the non-SEOs ranked in order of 

level of annual compensation starting with the greatest amount: [identify name, title, and 

employer of each SEO]; and 

(xvi) I understand that a knowing and willful false or fraudulent statement made 

in connection with this certification may be punished by fine, imprisonment, or both. 

(See, for example 18 USC 1001).” 

30.16 Q-16: What is the Office of the Special Master for TARP Executive 

Compensation, and what are its powers, duties and responsibilities? 

 (a) The Office of the Special Master for TARP Executive Compensation. The 

Secretary of the Treasury shall establish the Office of the Special Master for TARP 

Executive Compensation (Special Master). The Special Master shall serve at the pleasure 

of the Secretary, and may be removed by the Secretary without notice, without cause, and 

prior to the naming of any successor Special Master. The Special Master shall have the 

following powers, duties and responsibilities: 

 (1) Interpretative authority. The Special Master shall have responsibility for 

interpreting section 111 of EESA, these regulations, and any other applicable guidance, 

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to determine how the requirements under section 111 of EESA, these regulations, and 

any other applicable guidance, apply to particular facts and circumstances. Accordingly, 

the Special Master shall make all determinations, as required, as to the meaning of such 

guidance and whether such requirements have been met in any particular circumstances. 

In addition, a TARP recipient or a TARP recipient employee may submit a request, in 

accordance with paragraph (c)(3) of this section, for an advisory opinion with respect to 

the requirements under section 111 of EESA, these regulations and any other applicable 

guidance. 

 (2) Review of prior payments to employees. Section 111(f) of EESA provides 

that the Secretary shall review bonuses, retention awards, and other compensation paid 

before February 17, 2009, to employees of each entity receiving TARP assistance before 

February 17, 2009, to determine whether any such payments were inconsistent with the 

purposes of section 111 of EESA or TARP, or otherwise contrary to the public interest. 

Section 111(f) of EESA provides that, if the Secretary makes such a determination, the 

Secretary shall seek to negotiate with the TARP recipient and the subject employee for 

appropriate reimbursements to the Federal Government with respect to compensation or 

bonuses. The Special Master shall have the responsibility for administering these 

provisions, including the identification of the payments that are inconsistent with the 

purposes of EESA or TARP, or otherwise contrary to the public interest, and the Special 

Master shall have responsibility for the negotiation with the TARP recipient and the 

subject employee for appropriate reimbursements to the Federal Government with respect 

to compensation or bonuses. The Special Master shall make this determination by 

application of the principles outlined in paragraph (b) of this section. The Special 

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Master’s administration of these provisions may provide for the scope of review by the 

Special Master of a payment, including a limited review or no review, depending on the 

payment amount, the type of payment, the overall compensation earned by the employee 

during the relevant period, a combination thereof, or such other factors as the Special 

Master may determine, where the Special Master determines that such factors 

demonstrate that such payments are not, or are highly unlikely to be, inconsistent with the 

purposes of section 111 of EESA or TARP, or otherwise contrary to the public interest, 

or that renegotiation of such payments is not in the public interest. The Special Master 

may request in writing any information from TARP recipients necessary to carry out the 

review of prior compensation required under section 111(f) of EESA. TARP recipients 

must submit any requested information to the Special Master within 30 days of the 

request. 

(3) Approval of certain payments to employees of TARP recipients receiving 

exceptional financial assistance. (i) SEOs and most highly compensated employees. The 

Special Master shall determine whether the compensation structure for each SEO or most 

highly compensated employee of a TARP recipient receiving exceptional assistance, 

including the amounts payable or potentially payable under such compensation structure, 

will or may result in payments that are inconsistent with the purposes of section 111 of 

EESA or TARP, or are otherwise contrary to the public interest. The Special Master 

shall make such determinations by applying the principles outlined in paragraph (b) of 

this section, subject to the requirement that the compensation structure and payments 

satisfy the applicable limitations under §30.10 (Q-10). This requirement shall apply to 

any compensation accrued or paid during any period the SEO or most highly 

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compensated employee is subject to the limitations under §30.10 (Q-10). Initial requests 

for such approval must be submitted no later than [INSERT DATE 60 DAYS AFTER 

DATE OF PUBLICATION]. The Special Master’s administration of these provisions 

may provide for the Special Master’s scope of review, including a limited review or no 

review, of a portion of a compensation structure or payment depending on the amount of 

such payments, the type of such payments, the overall compensation earned by the 

employee during the relevant period, a combination thereof, or such other factors as the 

Special Master determines, if the Special Master has determined that such factors 

demonstrate that such payments are not, or are highly unlikely to be, inconsistent with the 

purposes of section 111 of EESA or TARP, or otherwise contrary to the public interest. 

The Special Master shall issue a determination within 60 days of the receipt of a 

substantially complete submission. The TARP recipient must make a further request for 

approval to the extent the compensation structure for any SEO or most highly 

compensated employee, including the amounts that are or may be payable, for any SEO 

or highly compensated employee is materially modified. In reviewing compensation 

structures and compensation payments for any period subject to Special Master review, 

the Special Master may take into account other compensation structures and other 

compensation earned, accrued or paid, including such compensation and compensation 

structures that are not subject to the restrictions of Section 111 of EESA pursuant to 

section 111(b)(3)(D)(iii) (see §30.10(e)(2) (Q-30.10(e)(2) (certain legally binding rights 

under valid written employment contracts)), and amounts that were accrued or paid prior 

to [INSERT DATE OF PUBLICATION IN THE FEDERAL REGISTER] and are 

therefore not subject to review by the Special Master.

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(ii) Other executive officers and most highly compensated employees. With 

respect to any employee who is either an executive officer (as defined under the 

Securities and Exchange Act Rule 3b-7) or one of the 100 most highly compensated 

employees of a TARP recipient receiving exceptional assistance (or both), who is not 

subject to the bonus limitations under §30.10 (Q-10), the Special Master shall determine 

whether the compensation structure for such employees will or may result in payments 

that are inconsistent with the purposes of section 111 of EESA or TARP, or are otherwise 

contrary to the public interest. The Special Master shall make such determination 

through application of the principles outlined in paragraph (b) of this section. With 

respect to the scope of the required review, the Special Master shall determine only 

whether the compensation arrangements are adequately structured, and is not required to 

rule with respect to the amounts that are or may be payable thereunder. However, the 

TARP recipient may also request an advisory opinion with respect to the amounts that are 

or may be payable, which the Special Master may provide in his sole discretion. 

Notwithstanding the foregoing, if the total annual compensation to an employee complies 

with the rules applicable to an SEO under §30.10 (Q-10) applied without any limits on 

the grant of long-term restricted stock, and the annual compensation other than long-term 

restricted stock does not exceed $500,000 (or for 2009, $500,000 prorated to reflect the 

remaining portion of 2009 after [INSERT DATE OF PUBLICATION IN THE 

FEDERAL REGISTER]), the compensation structure will automatically be deemed to 

meet the requirements and no prior approval by the Special Master will be required. For 

purposes of the $500,000 limit, in determining annual compensation, all equity-based 

compensation granted in fiscal years ending after [INSERT DATE OF PUBLICATION 

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IN THE FEDERAL REGISTER] will be included in the calculation only in the year in 

which they are granted at their total fair market value on the grant date and all equitybased compensation granted in fiscal years ending prior to [INSERT DATE OF 

PUBLICATION IN THE FEDERAL REGISTER] will not be included in the calculation 

of annual compensation. In addition, solely for purposes of applying the limit (and not 

for purposes of identifying the most highly compensated employees), the term annual 

compensation includes amounts required to be disclosed under paragraph (viii) of Item 

402(a) of Regulation S-K of the federal securities laws (change in the actuarial present 

value of benefits under a pension plan and above-market earnings on deferred 

compensation). The Special Master’s administration of these provisions may provide for 

limited or no review of a portion of a compensation structure by the Special Master 

depending on the amount of potential payments, the type of such payments, the overall 

compensation earned by the employee during the relevant period, a combination thereof, 

or such other factors as the Special Master determines, where the Special Master has 

determined that such factors demonstrate that such payments are not, or are highly 

unlikely to be, inconsistent with the purposes of section 111 of EESA or TARP, or 

otherwise contrary to the public interest. Initial requests for such approval must be 

submitted no later than 120 days after publication of the final rule. Separate requests 

need not be submitted for each individual covered employee, but should be submitted for 

identified groups of employees subject to the same compensation structures to the extent 

possible as long as sufficient detail regarding individual compensation awards are 

provided as necessary to evaluate such employee’s compensation structure. The Special 

Master shall issue a determination within 60 days of the receipt of a substantially 

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complete submission. The TARP recipient must make a further request for approval to 

the extent the compensation structure, including the amounts that are or may be payable, 

for any executive officer is materially amended. In reviewing compensation structures 

for any period subject to Special Master review, the Special Master may take into account 

other compensation structures and other compensation earned, accrued or paid, including 

such compensation and compensation structures that are not subject to the restrictions of 

Section 111 of EESA pursuant to section 111(b)(3)(D)(iii) (see §30.10(e)(2) (Q30.10(e)(2) (certain legally binding rights under valid written employment contracts)), 

and amounts that were accrued or paid prior to [INSERT DATE OF PUBLICATION IN 

THE FEDERAL REGISTER] and are therefore not subject to review by the Special 

Master. 

(iii) Period from [INSERT DATE OF PUBLICATION IN THE FEDERAL 

REGISTER] through final determination. For the period from [INSERT DATE OF 

PUBLICATION IN THE FEDERAL REGISTER] through the date of the Special 

Master’s final determination, the TARP recipient will be treated as complying with this 

section if, with respect to employees covered by paragraph (a)(3)(i) of this section, the 

TARP recipient continues to pay compensation to such employees in accordance with the 

terms of employment as of [INSERT DAY ONE DAY BEFORE DATE OF 

PUBLICATION IN THE FEDERAL REGISTER] to the extent otherwise permissible 

under this Interim Final Rule (for example, continued salary payments but not any bonus 

payments) and if, with respect to employees covered by paragraph (a)(3)(ii) of this 

section, the TARP recipient continues to pay compensation to such employees under the 

compensation structure established as of [INSERT DAY ONE DAY BEFORE DATE OF 

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PUBLICATION], and if in addition the TARP recipient promptly complies with any 

modifications that may be required by the Special Master’s final determination. 

However, the Special Master may take into account the amounts paid to an employee 

during such period in determining the appropriate compensation amounts and 

compensation structures, as applicable, for the remainder of the year. 

 (4) Advisory opinions on compensation structures or compensation payments to 

employees of TARP recipients. A TARP recipient or TARP recipient employee may 

request an advisory opinion from the Special Master as to whether a compensation 

structure is, or will or may result in payments that are, inconsistent with the purposes of 

EESA or TARP, or otherwise contrary to the public interest. In addition, the Special 

Master may become aware of compensation structures or payments at any TARP 

recipient for which it may be useful to provide an advisory opinion as to whether such 

structure or payments meets this standard. Accordingly, the Special Master shall have 

the authority to render advisory opinions upon request or at the Special Master’s 

initiative, as to whether a compensation structure is, or will or may result in payments to 

an employee that are, inconsistent with the purposes of section 111 of EESA or TARP, or 

otherwise contrary to the public interest, or whether a compensation payment made, or to 

be made, was or will be inconsistent with the purposes of section 111 of EESA or TARP, 

or otherwise contrary to the public interest. If the Special Master renders an adverse 

opinion, the Special Master shall have the authority to seek to negotiate with the TARP 

recipient and the subject employee for appropriate reimbursements to the TARP recipient 

or the Federal government. Any advisory opinion shall reflect the Special Master’s 

application of the principles outlined in paragraph (b) of this section. The Special Master 

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shall not be required to render an advisory opinion in every instance, but may do so only 

where the Special Master deems appropriate and feasible in the context of the Special 

Master’s other responsibilities. In any case, the Special Master shall render an opinion, 

or affirmatively decline to render an advisory opinion, within 60 days of the receipt of a 

substantially complete submission. The Special Master shall not be required to explain 

any decision to decline to render an advisory opinion. 

 (5) Other designated duties and powers. The Special Master shall have such other 

duties and powers related to the application of compensation issues arising in the 

administration of EESA or TARP as the Secretary or the Secretary’s designate may 

delegate to the Special Master, including, but not limited to, the interpretation or 

application of contractual provisions between the Federal government and a TARP 

recipient as those provisions relate to the compensation paid to, or accrued by, an 

employee of such TARP recipient. 

(b) Determination of whether compensation is inconsistent with the purposes of 

section 111 of EESA or TARP or is otherwise contrary to the public interest. (1) 

Principles. In reviewing a compensation structure or a compensation payment to 

determine whether it is inconsistent with the purposes of section 111 of EESA or TARP 

or is otherwise contrary to the public interest, the Special Master shall apply the 

principles enumerated below. The principles are intended to be consistent with sound 

compensation practices appropriate for TARP recipients, and to advance the purposes and 

considerations described in EESA sections 2 and 103, including the maximization of 

overall returns to the taxpayers of the United States and providing stability and 

preventing disruptions to financial markets. The Special Master has discretion to 

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determine the appropriate weight or relevance of a particular principle depending on the 

facts and circumstances surrounding the compensation structure or payment under 

consideration, such as whether a payment occurred in the past or is proposed for the 

future, the role of the employee within the TARP recipient, the situation of the TARP 

recipient within the marketplace and the amount and type of financial assistance 

provided. To the extent that two or more principles may appear inconsistent in a 

particular situation, the Special Master will determine the relative weight to be accorded 

each principle. In the case of any review of payments already made under paragraph 

(c)(2) of this section, or of any rights to bonuses, awards, or other compensation already 

granted, the Special Master shall apply these principles by considering the facts and 

circumstances at the time the compensation was granted, earned, or paid, as appropriate. 

(i) Risk. The compensation structure should avoid incentives to take unnecessary 

or excessive risks that could threaten the value of the TARP recipient, including 

incentives that reward employees for short-term or temporary increases in value, 

performance, or similar measure that may not ultimately be reflected by an increase in the 

long-term value of the TARP recipient. Accordingly, incentive payments or similar 

rewards should be structured to be paid over a time horizon that takes into account the 

risk horizon so that the payment or reward reflects whether the employee’s performance 

over the particular service period has actually contributed to the long-term value of the 

TARP recipient. 

 (ii) Taxpayer return. The compensation structure, and amount payable where 

applicable, should reflect the need for the TARP recipient to remain a competitive 

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enterprise, to retain and recruit talented employees who will contribute to the TARP 

recipient’s future success, and ultimately to be able to repay TARP obligations. 

 (iii) Appropriate allocation. The compensation structure should appropriately 

allocate the components of compensation such as salary, short-term and long-term 

incentives, as well as the extent to which compensation is provided in cash, equity or 

other types of compensation such as executive pensions, other benefits, or perquisites, 

based on the specific role of the employee and other relevant circumstances, including the 

nature and amount of current compensation, deferred compensation, or other 

compensation and benefits previously paid or awarded. The appropriate allocation may 

be different for different positions and for different employees, but generally, in the case 

of an executive or other senior level position a significant portion of the overall 

compensation should be long-term compensation that aligns the interest of the employee 

with the interests of shareholders and taxpayers. 

 (iv) Performance-based compensation. An appropriate portion of the 

compensation should be performance-based over a relevant performance period. 

Performance-based compensation should be determined through tailored metrics that 

encompass individual performance and/or the performance of the TARP recipient or a 

relevant business unit taking into consideration specific business objectives. 

Performance metrics may relate to employee compliance with relevant corporate policies. 

In addition, the likelihood of meeting the performance metrics should not be so great that 

the arrangement fails to provide an adequate incentive for the employee to perform, and 

performance metrics should be measurable, enforceable, and actually enforced if not met. 

The appropriate allocation and the appropriate performance metrics may be different for 

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different positions and for different employees, but generally a significant portion of total 

compensation should be performance-based compensation, and generally that portion 

should be greater for positions that exercise higher levels of responsibility. 

 (v) Comparable structures and payments. The compensation structure, and 

amount payable where applicable, should be consistent with, and not excessive taking 

into account, compensation structures and amounts for persons in similar positions or 

roles at similar entities that are similarly situated, including, as applicable, entities 

competing in the same markets and similarly situated entities that are financially 

distressed or that are contemplating or undergoing reorganization. 

(vi) Employee contribution to TARP recipient value. The compensation 

structure, and amount payable where applicable, should reflect the current or prospective 

contributions of an employee to the value of the TARP recipient, taking into account 

multiple factors such as revenue production, specific expertise, compliance with company 

policy and regulation (including risk management), and corporate leadership, as well as 

the role the employee may have had with respect to any change in the financial health or 

competitive position of the TARP recipient. 

 (2) Further guidance. The Secretary reserves the discretion to modify or amend 

the foregoing principles through notice, announcement or other generally applicable 

guidance, provided that such guidance shall apply only prospectively from its date of 

publication and shall not provide a basis for reconsideration of a determination of the 

Special Master, except as the Special Master deems appropriate in light of such 

modification or amendment. 

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 (c) Special Master determinations. (1) Initial determinations. The Special Master 

shall provide an initial determination in writing, within 60 days of the receipt of a 

substantially complete submission, setting forth the facts and analysis that formed the 

basis for the determination. The TARP recipient shall have 30 days to request in writing 

that the Special Master reconsider the initial determination. The request for 

reconsideration must specify a factual error or relevant new information not previously 

considered, and must demonstrate that such error or lack of information resulted in a 

material error in the initial determination. The Special Master must provide a final 

determination in writing within 30 days, setting forth the facts and analysis that formed 

the basis for the determination. If a TARP recipient does not request reconsideration 

within 30 days, the initial determination shall be treated as a final determination. 

(2) Final determinations. In the case of any final determination that the TARP 

recipient is required to receive, the final determination of the Special Master shall be final 

and binding and treated as the determination of the Treasury. 

(3) Advisory Opinions. An advisory opinion of the Special Master shall not be 

binding upon any TARP recipient or employee, but may be relied upon by a TARP 

recipient or employee if the advisory opinion applies to the TARP recipient and the 

employee and the TARP recipient and employee comply in all respects with the advisory 

opinion. 

 (d) Submissions to the Special Master. (1) Submission procedures. Submissions 

to the Special Master may be made under such procedures as the Special Master shall 

determine. The Special Master may reserve the right to request further information at 

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any time and a submission shall not be treated as substantially complete unless the 

Special Master has so designated. 

 (2) Disclosure procedures. Materials submitted to the Special Master and the 

initial and final determinations of the Special Master are subject to disclosure under the 

standards provided in the Freedom of Information Act (FOIA, (5 U.S.C. 552 et seq.)). In 

addition, the final determinations of the Special Master shall be disclosed to the public. 

The Special Master shall promulgate procedures for ensuring that disclosed materials 

have been subject to appropriate redaction to protect personal privacy, privileged or 

confidential commercial or financial information or other appropriate redactions 

permissible under the FOIA, which may include a procedure for the person or entity 

making the submission to request redactions and to review and request reconsideration of 

any proposed redactions before such redacted materials are released. 

 

§30.17 Q-17: How do the effective date provisions apply with respect to the 

requirements under section 111 of EESA?

 (a) General rule. The requirements under this part with respect to sections 

111(b), 111(c), 111(d) and 111(f) are effective upon [INSERT DATE OF 

PUBLICATION IN THE FEDERAL REGISTER]. The guidance under this part with 

respect to those sections supersedes any previous guidance applicable to a TARP 

recipient to the extent that guidance is inconsistent with those requirements, but 

supersedes that guidance only as of [INSERT DATE OF PUBLICATION IN THE 

FEDERAL REGISTER]. To the extent previous contractual provisions are not 

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inconsistent with ARRA or the guidance under this part, those contractual provisions 

remain in effect and continue to apply in accordance with their terms. 

(b) Bonus payment limitation. The bonus payment limitation provision under 

§30.10 (Q-10) of this part does not apply to bonus payments paid or accrued by TARP 

recipients or their employees before [INSERT DATE OF PUBLICATION IN THE 

FEDERAL REGISTER]. Certain bonus payments may relate to a service period 

beginning before and ending after [INSERT DATE OF PUBLICATION IN THE 

FEDERAL REGISTER]. In these circumstances, the employee will not be treated as 

having accrued the bonus payment on or after [INSERT DATE OF PUBLICATION IN 

THE FEDERAL REGISTER] if the bonus payment is at least reduced to reflect the 

portion of the service period that occurs after [INSERT DATE OF PUBLICATION IN 

THE FEDERAL REGISTER]. If the employee is a SEO or most highly compensated 

employee at the time the net bonus payment after such reduction would otherwise be 

paid, the amount still may not be paid until such time as bonus payments to that 

employee are permitted. 

Dated: _______________ 

_________________________________________ 

Andrew Mayock 

Executive Secretary