EXHIBITI
COVERED EMPLOYEES

2009 Compensation

Company Name: Bank of America Corporation

Stock Salary
(Performance based: | Long-Term Restricted Stock Total Direct
‘The stock vests at grant | (Performance based: Awarded | Compensation
and is redeemable in based on achievement of (Cash salary paid to
three equal. annual objective performance goals. | date plus two months at
Cash Salary _| installments beginning on | Vests after 3 years of service. | new run rate + stock
(Rate going | the 2nd anniversary of | Transferability dependent on salary + long-term
Employee ID forward.) grant.) TARP repayment.) restricted stock.)
1678 $0 $0 $0. $0.
1029 $500,000 $1,750,000 $1,125,000 $3,375,000,
1055 $403.847 12,180 $2,851,923
1108 $412,500 $1,914,583 $1,106,250 $3,318,750
1123 $300,000 $4.483,333 $2,350,000 $7,050,000
H43 $500,000 $9.316.667 $0 $9,900,000
1164 $500,000, $5,640,000 $3,001,250 $9,003,750
1227 $352,500 $4.797.917 $7.578,750
1562 $500,000 $5,250,000 $0 $6,000,000,
1564 $412,500 $5,114,583 $2.706.250 $8,118,750,
V7l4 $403,847 $4,612,180 $2,451,923 $7.355,770
1787 $412,500 $2,114.583 $1,206,250 $3,618,750.
1850 $500,000 $3.950.000 380 $4,700,000
Comparison of 2009 Compensation to Prior Years: 2007 & 2008 Compensation
2008 Cash decreased by $89.3M or 94.5%
Total Direct Compensation decreased by $149.2M or 65.5%
2007 Cash decreased by $49.8M or 92.2%
Total Direct Compensation decreased by $112.6M or 63.3%

Note: |: Amounts reflected in this Exhibit do not include amounts the Company has asserted to be payable pursuant to legally
binding rights under valid employment contracts, see 31 C.F.R. § 30.10(e)(2).
Note: 2: The total number of Covered Employees may be less than 25 because of terminations, departures and retirements

after January 1, 2009.

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criteria that have been developed and reviewed in consultation with the Office of the
Special Master, and that will not vest unless the employee remains employed until the
third anniversary of grant. In addition, as required by the Rule, these awards may only be
redeemed in 25% installments for each 25% of BofA’s TARP obligations that are repaid.

d. “Other”? Compensation and Perquisites

BofA proposed limited payments of “other” compensation, as well as perquisites,
to the Covered Employees. The Special Master has concluded that, absent special
justification, employees—not the Company—generally should be responsible for paying
personal expenses, and that significant portions of compensation structures should not be
allocated to such perquisites and “other” compensation. See id. §30.16(b)(1)(iii).

The Rule requires that each Exceptional Assistance Recipient annually disclose to
Treasury any perquisites where the total value for any Senior Executive Officer or Most
Highly Compensated Employee exceeds $25,000. An express justification for offering
these benefits must also be disclosed. Accordingly, as described in Exhibits I and IT, and
the compensation structures the Special Master has determined to be consistent with the
Public Interest Standard provide no more than $25,000 in “other” compensation and
perquisites to each of these employees. Any exceptions to this limitation will require that
the Company provide to the Office of the Special Master an independent justification for
the payment that is satisfactory to the Special Master. To the extent that payments
exceeding this limitation have already been made to a Covered Employee in 2009, those
amounts should be promptly returned to the Company.

e. Non-Qualified Deferred Compensation

BofA proposed that certain Covered Employees receive compensation in the form
of accruals under a “non-qualified deferred compensation” plan. In such plans,
employers periodically credit employees with an entitlement to post-retirement payments.
Over time, these credits accumulate and employees may become entitled to substantial
cash guarantees payable on retirement—in addition to any payments provided under
retirement plans maintained for employees generally.

The Special Master has concluded that the primary portion of a Covered
Employee’s compensation package should be allocated to compensation structures that
are “performance-based over a relevant performance period.” /d. § 30.16(b)(1)(iv).
Payments under the Company’s “non-qualified deferred compensation” plans do not
depend upon “individual performance and/or the performance of the [Company] or a
relevant business unit,” d.; instead, such accruals are simply guaranteed cash payments
from the Company in the future. In addition, these payments can make it more difficult
for shareholders to readily ascertain the full amount of pay due a top executive upon
leaving the firm.

Covered Employees should fund their retirements using wealth accumulated

based on Company performance while they are employed, rather than being guaranteed
substantial retirement benefits by the Company regardless of Company performance

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ANNEX A
DETERMINATION MEMORANDUM

I. INTRODUCTION

The Emergency Economic Stabilization Act of 2008, as amended by the
American Recovery and Reinvestment Act of 2009 (“EESA”), requires the Secretary of
the Treasury to establish standards related to executive compensation and corporate
governance for financial institutions receiving financial assistance under the Troubled
Asset Relief Program (“TARP”). Through the Department of the Treasury’s Interim
Final Rule on TARP Standards for Compensation and Corporate Governance (the
“Rule”), the Secretary delegated to the Office of the Special Master for TARP Executive
Compensation (the “Office of the Special Master” or “the Office”) responsibility for
reviewing compensation structures of certain employees at financial institutions that
received exceptional financial assistance under the TARP (“Exceptional Assistance
Recipients”). 31 C.F.R. § 30.16(a); id. § 30.16(a)(3). For these employees, the Special
Master must determine whether the compensation structure will or may result in
payments “inconsistent with the purposes of section 111 of EESA or TARP, or [is]
otherwise contrary to the public interest.” [d.

Bank of America Corporation (“BofA” or the “Company”), one of seven
Exceptional Assistance Recipients, has submitted to the Special Master proposed
compensation structures for review pursuant to Section 30.16(a)(3) of the Rule. These
compensation structures apply to 3 employees that the Company has identified as Senior
Executive Officers (the “Senior Executive Officers,” or “SEOs”) for purposes of the
Rule, and 11 employees the Company has identified as among the most highly
compensated employees of the Company for purposes of the Rule (the “Most Highly
Compensated Employees,” and, together with the SEOs, the “Covered Employees”).

The Special Master has completed the review of the Company’s proposals for the
Covered Employees pursuant to the principles set forth in the Rule. /d. § 30.16(b)(1).
This Determination Memorandum sets forth the determinations of the Special Master,
pursuant to Section 30.16(a)(3) of the Rule, with respect to the Covered Employees.

IL. BACKGROUND

On June 15, 2009, the Department of the Treasury (“Treasury”) promulgated the
Rule, creating the Office of the Special Master and delineating its responsibilities.
Immediately following that date, the Special Master, and Treasury employees working in
the Office of the Special Master, conducted extensive discussions with BofA officials.
During these discussions, the Office of the Special Master informed BofA about the
nature of the Office’s work and the authority of the Special Master under the Rule. These
discussions continued for a period of months, during which the Special Master and BofA
explored potential compensation structures for the Covered Employees.

The Rule required that each Exceptional Assistance Recipient submit proposals
for each Senior Executive Officer and Most Highly Compensated Employee no later than

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EXHIBIT IT
TERMS AND CONDITIONS OF PAYME!
CONSISTENT WITH THE PUBLIC I

S AND STRUCTURES
EREST STANDARD

The following general terms and conditions shall govern the compensation

structures described in Exhibit I. The Special Master’s determination that those
structures are consistent with the Public Interest Standard is qualified in its entirety by the
Company’s adherence to these terms and conditions.

e

Cash base salary. Cash base salaries reflect the go-forward rate for the employee
effective as of November 1, 2009. Compensation paid in the form of cash base
salary prior to that date in accordance with the terms of employment as of June
14, 2009 shall be permitted unless otherwise noted. 31 C.F.R. § 30.16(a)(3)(iii).

Stock salary. Rates of stock salary grants reflect full-year values. Because this is
a new compensation element, the amounts are payable on a nunc pro tunc basis
effective January 1, 2009. Stock salary must be determined as a dollar amount
through the date salary is earned, be accrued at the same time or times as the
salary would otherwise be paid in cash, and vest immediately upon grant, with the
number of shares or units based on the fair market value on the date of award.
Stock granted as stock salary may only be redeemed in three equal, annual
installments beginning on the second anniversary of grant, with each installment
redeemable one year early if TARP obligations are repaid.

Long-term restricted stock. Long-term restricted stock may be granted upon the
achievement of specified, objective performance criteria that have been developed
and reviewed in consultation with the Office of the Special Master and certified
by the Compensation and Benefits Committee of the Company’s Board of
Directors. Any such stock may vest only if the employee remains employed by
the Company on the third anniversary of grant (or, if earlier, upon death or
disability). The stock shall be transferable only in 25% increments for each 25%
of TARP obligations repaid by the Company.

Other compensation and perquisites. No more than $25,000 in total other
compensation and perquisites may be provided to any Covered Employee, absent
exceptional circumstances for good cause shown, as defined by pertinent SEC
regulations.

Supplemental executive retirement plans and non-qualified deferred
compensation plans. Following the date of the Determination Memorandum, no
additional amounts may be accrued under supplemental executive retirement
plans, and no Company contributions may be made to other “non-qualified
deferred compensation” plans, as detined by pertinent SEC regulations.

Qualified Plans. For the avoidance of doubt, the Special Master has determined

that participation by the Covered Employees in tax-qualified retirement, health
and welfare, and similar plans is consistent with the Public Interest Standard.

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(4) Clawback. BofA must ensure that any incentive award paid to a Covered
Employee is subject to a clawback if the award 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. BofA must exercise its clawback rights except to the extent that it
is unreasonable to do so. Id. § 30.8.

(5) Say-on-Pay. BofA 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). /d. § 30.13.

(6) Policy Addressing Excessive or Luxury Expenditures. BofA was required to
adopt an excessive or luxury expenditures policy, provide that policy to Treasury,
and post it on the Company’s website. If BofA’s board of directors 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 post the amended policy on BofA’s Internet website. /d. § 30.12.

(7) Prohibition on Tax Gross-Ups. Except as explicitly permitted under the Rule,
BofA is prohibited from providing (formally or informally) tax gross-ups to any
of the Covered Employees. /d. § 30.11(d).

(8) CEO and CFO Certification. BofA’s CEO and chief financial officer must
provide to the Securities and Exchange Commission written certification of
BofA’s compliance with the various requirements of section 111 of EESA. The
precise nature of the required certification is identified in the Rule. Id. § 30.15
Appx. A.

VI. CONCLUSION

The Special Master has reviewed the Proposed Structures for the Covered
Employees for 2009 in light of the principles set forth at 31 C.F.R. § 30.16(b). On the
basis of that review, the Special Master has determined that the Proposed Structures
submitted by BofA require modification in order to meet the Public Interest Standard.

The Special Master has separately reviewed the compensation structures set forth
in Exhibits I and I in light of the principles set forth at 31 C.F.R. § 30.16(b). Pursuant
to the authority vested in the Special Master by the Rule, and in accordance with Section
30.16(a)(3) thereof, the Special Master hereby determines that the compensation
structures set forth in Exhibits I and IT, including the amounts payable or potentially
payable under such compensation structures, will not result in payments that are
inconsistent with the purposes of section 111 of EESA or the TARP, and will not
otherwise be contrary to the public interest.

Pursuant to the Interim Final Rule, BofA may, within 30 days of the date hereof,
request in writing that the Special Master reconsider the determinations set forth in this

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payment in 25% installments for each 25% repayment of the Company’s TARP
obligations.

After submitting the Proposed Structures, the Company informed the Office of the
Special Master that neither the CEO nor any of his direct reports who were serving in
leadership positions at either legacy BofA or Merrill Lynch during 2008 (including those
among the Covered Employees) would be eligible for an annual long-term incentive
award in 2009.

d. “Other” Compensation and Perquisites

BofA proposed payments of “other” compensation, as well as perquisites, to the
Covered Employees. These proposed payments varied in value.

e. Non-Qualified Deferred Compensation

BofA also proposed that certain Covered Employees receive compensation in the
form of accruals under a “non-qualified deferred compensation” plan.

2. Certain other Covered Employees

a. Covered Employee with a Cash Guarantee

BofA included a proposal with respect to a Covered Employee who is party to an
agreement with the Company providing for a substantial guaranteed cash payment in
2009 BofA believed this agreement created a legally binding right under a valid written
employment contract, see 31 C.F.R. § 30.10(e)(2). BofA proposed that the amount of
cash that would otherwise be delivered to this Covered Employee be instead delivered as
a $700,000 cash salary, with the remainder of the guaranteed amount paid in salary stock
provided on the same terms that BofA proposed for salary stock generally. The Covered
Employee agreed to waive his right to the guaranteed cash payment in exchange for the
proposed structure.

b. CEO

As initially submitted by BofA, the Proposed Structure for the CEO included cash
salary of $950,000 (reduced from his 2008 salary of $1,500,000), stock salary of
$7,050,000 and eligibility for an annual long-term incentive award of up to $4,000,000.

On September 30, 2009, the CEO announced his retirement from the Company,
effective December 31, 2009. Following this announcement, the Company proposed
instead that the CEO be paid no stock salary or long-term incentive award for 2009 and a
prospective cash salary of $0 from the date of this Determination Memorandum through
his last day of employment.

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Professor of Law, Economics, and Finance and Director of the Program on
Corporate Governance at Harvard Law School; and

* Consultation with Kevin J. Murphy, a world-renowned expert in executive
compensation and the Kenneth L. Trefftzs Chair in Finance in the department of
finance and business economics at the University of Southern California’s
Marshall School of Business.

The Special Master considered these views, in light of the statutory and regulatory
standards described in Part II below, when evaluating the Company’s proposals for the
Covered Employees for 2009.

III. STATUTORY AND REGULATORY STANDARDS

The Rule requires that the Special Master determine for each of the Covered
Employees whether BofA’s proposed compensation structures, including amounts
payable or potentially payable under the compensation structure, “will or may result in
payments that are inconsistent with the purposes of section 111 of EESA or TARP, or [is]
otherwise contrary to the public interest.” 31 C.F.R. § 30.16(a)(3) (as applied to Covered
Employees of Exceptional Assistance Recipients, the “Public Interest Standard’).
Regulations promulgated pursuant to the Rule require that the Special Master consider six
principles when making these compensation determinations:

(1) Risk. The compensation structure should avoid incentives which encourage
employees to take unnecessary or excessive risks that could threaten the value of
the Exceptional Assistance Recipient, including incentives that reward employees
for short-term or temporary increases in value or performance; or similar
measures that may undercut the long-term value of the Exceptional Assistance
Recipient. Compensation packages should be aligned with sound risk
management. /d. § 30.16(b)(1)(i).

(2) Taxpayer return. The compensation structure and amount payable should reflect
the need for the Exceptional Assistance Recipient to remain a competitive
enterprise, to retain and recruit talented employees who will contribute to the
recipient's future success, so that the Company will ultimately be able to repay its
TARP obligations. Id. § 30.16(b)(1)(ii).

(3) Appropriate allocation. The compensation structure should appropriately allocate
the components of compensation such as salary and short-term and long-term
performance incentives, as well as the extent to which compensation is provided
in cash, equity, or other types of compensation such as executive pensions, or
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. /d. § 30.16(b)(1)(ii).

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August 14, 2009. Id. § 30.16(a)(3). On July 20, 2009, the Special Master requested from
each Exceptional Assistance Recipient, including BofA, certain data and documentary
information necessary to facilitate the Special Master’s review of the Company’s
compensation structures. The request required BofA to submit data describing its
proposals, and the payments that would result from the proposals concerning each
Covered Employee.

In addition, the Rule authorizes the Special Master to request information from an
Exceptional Assistance Recipient “under such procedures as the Special Master may
determine.” Id. § 30.16(d). BofA was required to submit competitive market data
indicating how the amounts payable under BofA’s proposals relate to the amounts paid to
similarly situated employees at similarly situated financial institutions. BofA was also
required to submit a range of documentation, including information related to proposed
performance metrics, internal policies designed to curb excessive risk, and certain
previously existing compensation plans and agreements.

BofA submitted this information to the Office of the Special Master on August
14, 2009. Following a preliminary review of the submission, and the submission of
certain additional information, on August 31, 2009, the Special Master determined that
BofA’s submission was substantially complete for purposes of the Rule. Id. §
30.16(a)(3). The Office of the Special Master then commenced a formal review of
BofA’s proposals for the Covered Employees. The Rule provides that the Special Master
is required to issue a compensation determination within 60 days of a substantially
complete submission. Jd. § 30.16(a)(3).

The Office of the Special Master’s review of the Company’s proposals was aided
by analysis from a number of internal and external sources, including:

e Treasury personnel detailed to the Office of the Special Master, including
executive compensation specialists with significant experience in reviewing,
analyzing, designing and administering executive compensation plans, and
attorneys with experience in matters related to executive compensation;

e¢ Competitive market data provided by the Company in connection with its
submission to the Office of the Special Master;

e External information on comparable compensation structures extracted from the
U.S. Mercer Benchmark Database-Executive;

e External information on comparable compensation structures extracted from
Equilar’s Executivelnsight database (which includes information drawn from
publicly filed proxy statements) and Equilar’s Top 25 Survey Summary Report
(which includes information from a survey on the pay of highly compensated
employees);

¢ Consultation with Lucian A. Bebchuk, a world-renowned expert in executive
compensation and the William J. Friedman and Alicia Townsend Friedman

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Determination Memorandum. 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 determinations.
If BofA does not request reconsideration within 30 days, the determinations set forth
herein will be treated as final determinations. 31 C.F.R. § 30.16(c)(1).

The foregoing determinations are limited to the compensation structures described
in Exhibits I and IT, and shall not be relied upon with respect to any other employee. The
determinations are limited to the authority vested in the Special Master by Section
30.16(a)(3) of the Rule, and shall not constitute, or be construed to constitute, the
judgment of the Office of the Special Master or Treasury with respect to the compliance
of any compensation structure with any other provision of the Rule. Moreover, this
Determination Memorandum has relied upon, and is qualified in its entirety by, the
accuracy of the materials submitted by BofA to the Office of the Special Master, and the
absence of any material misstatement or omission in such materials.

Finally, the foregoing determinations are limited to the compensation structures
described herein, and no further compensation of any kind payable to any Covered
Employee without the prior approval of the Special Master would be consistent with the
Public Interest Standard.

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TV. COMPENSATION STRUCTURES AND PAYMENTS

A. BofA Proposals

BofA has provided the Office of the Special Master with detailed information
concerning its proposed 2009 compensation structures for the Covered Employees,
including amounts potentially payable under the compensation structure for each Covered
Employee (the “Proposed Structures”).

BofA supported its proposal with detailed assessments of each Covered
Employee’s tenure and responsibilities at the Company (or its applicable subsidiary) and
historical compensation structure. The submission also included market data that,
according to the Company, indicated that the amounts potentially payable to each
employee were comparable to the compensation payable to similarly situated employees
at a “peer group” of entities selected by the Company.

1. Covered Employees Generally

The following structures were proposed by BofA for the Covered Employee
generally, with the exception of BofA’s Chief Executive Officer (“ CEO”) and an
employee with an existing arrangement that provides a cash guarantee; each of those
employees are addressed separately.

a. Cash Salary

Except for the Company’s CEO, BofA proposed increasing the cash salary of
each Covered Employee to annualized amounts of either $700,000 or $950,000. The
Company’s proposal asserted that cash salaries at such levels could be justified by
reference to the compensation of similarly situated employees at similarly situated
companies.

b. Stock Salary

BofA proposed that Covered Employees receive substantial “stock salary,” in
annualized amounts ranging from $1,966,667 to $19,050,000. Stock salary would be
delivered on the Company’s regular payroll dates in the form of fully vested stock units,
which would then “settle” into regular shares and become transferable 40% on the first
anniversary of grant and 30% each on the second and third anniversaries.

c. Annual Long-Term Incentive Awards

BofA proposed that the Covered Employees be eligible in 2009 for substantial
grants of annual long-term incentive awards, with total potential values ranging from
$1,333,334 to $10,000,000. Under the proposal, the amount of an employee's award
would be calculated based on achievement of corporate and/or business unit financial
goals. Awards would be paid in the form of long-term restricted stock with vesting
subject to the employee providing two years of service from the date of award, and actual

AS


DEPARTMENT OF THE TREASURY
WASHINGTON, D.C. 20220

October 22 2009

Mr. J. Steele Alphin

Chief Administrative Officer

Bank of America Corporation

100 N. Tyron Street

NCI-007-58-22

Charlotte, North Carolina 28255-001

Re: Proposed Compensation Payments and
Structures for Senior Executive Officers and
Most Highly Compensated Employees

Dear Mr. Alphin:

Pursuant to the Department of the Treasury’s Interim Final Rule on TARP
Standards for Compensation and Corporate Governance, the Office of the Special Master
has completed its review of your 2009 compensation submission on behalf of the senior
executive officers and certain most highly compensated employees of Bank of America
Corporation (“BofA”). Attached as Annex A is a Determination Memorandum
(accompanied by Exhibits I and I.) providing the determinations of the Special Master
with respect to 2009 compensation for those employees. 31 C.F.R. § 30.16(a)(3).

The Interim Final Rule requires the Special Master to determine whether the
compensation structure for each senior executive officer and certain most highly
compensated employees “will or may result in payments inconsistent with the purposes
of section 111 of EESA or TARP, or [is] otherwise contrary to the public interest.” /d.
§ 30.16(a)(3). The Special Master has determined that, to satisfy this standard, 2009
compensation for senior executive officers and certain most highly compensated
employees of BofA generally must comport with the following standards:

@ There can be no guarantee of any “bonus” or “retention” awards among the
compensation structures approved by the Special Master. Cash guarantees
payable in 2009 pursuant to previously existing agreements must be restructured
to be payable in stock awards that may only be liquidated over time.

¢ Rather than cash, the majority of each individual's base salary will be paid in the
form of stock. This stock will immediately vest, in accordance with the Interim
Final Rule, but will only be redeemable in three equal, annual installments
beginning on the second anniversary of grant, with each installment redeemable
one year earlier if BofA repays its TARP obligations.



has concluded that the portion of the Covered Employee’s compensation that may be
allocated to cash salary should in most cases not exceed $500,000. See id. §
30.16(b)(1)(iii).

As described in further detail in Exhibits I and IT, the cash salaries that the
Special Master has determined to be consistent with the Public Interest Standard compare
appropriately to those paid to similar employees at similar firms, and are generally less
than $500,000.

The Special Master has also concluded that, for cash salaries payable to certain
employees to be consistent with the Public Interest Standard, further reductions are
required in consideration of “other compensation earned, accrued, or paid” by BofA in
2009. Id. § 30.16(a)(3). These adjustments apply to certain employees who received cash
bonus payments in 2009 that were excessive in light of bonuses provided to “persons in
similar positions or roles at similar entities,” id. § 30.16(b)(1)(v), and the “prospective
contributions of [the employee] to the value of the exceptional assistance recipient, taking
into account multiple factors such as...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 recipient.” /d. § 30.16(b)(1 yvi).!

b. Stock Salary

The Special Master has reviewed the amount of stock salary BofA proposed to
pay the Covered Employees in light of the principle that compensation structures should
generally be comparable to “ compensation structures and amounts for persons in similar
positions or roles at similar entities.” Jd. § 30.16(b)(1)(v). Based on this review, the
Special Master has concluded that the amount of stock salary BofA proposed paying to
the Covered Employees is excessive and that the proposals are inconsistent with the
Public Interest Standard. The compensation structures that the Special Master has
determined are consistent with the Public Interest Standard provide lesser amounts of
stock salary, as described in further detail in Exhibits I and I.

The Special Master also has concluded that, for the amount of stock salary
potentially payable to certain employees to be consistent with the Public Interest
Standard, further reductions were required in consideration of “other compensation
earned, accrued, or paid” by BofA in 2009. Id. § 30.16(a)(3). These adjustments apply
to certain employees who received cash bonus payments in 2009 that were excessive in
light of bonuses provided to “persons in similar positions or roles at similar entities,” id.

' ‘The Special Master's determinations regarding such “other compensation earned. accrued, or paid”

considered only the extent to which the amounts of such compensation should be considered in the
analysis with respect to whether the amounts potentially payable to the Covered Employees were
consistent with the Public Interest Standard. See 31 C.F.R. § 30.16(a)(3)(i). The determinations are
not, and should not be construed as an analysis, opinion, or determination under any other legal
standard applicable to the payment or receipt of such compensation or to any act arising from or
relating to such payment or receipt. including. without limitation, the Special Master’s authority under
31. CER. § 30.16(a)(3) to review whether such payments were “inconsistent with the purposes of
section I 11 of A or TARP, or otherwise contrary to the public interest.” /d.

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B. Determinations of the Special Master

The Special Master has reviewed the Proposed Structures in detail by application
of the principles set forth in the Rule and described in Part II above. In light of this
review and analysis, the Special Master has determined that both the structural design of
BofA’s proposals and the amounts potentially payable to Covered Employees under the
proposals would be inconsistent with the Public Interest Standard and, therefore, require
modification.

The Special Master has determined, in light of the considerations that follow, that
the compensation structures described in Exhibits I and IT to this Determination
Memorandum will not, by virtue of either their structural design or the amounts
potentially payable under them, result in payments inconsistent with the Public Interest
Standard.

1. Covered Employees Generally

a. Cash Salary

The Special Master has reviewed the cash salary proposals in light of the principle
that compensation structures should generally be comparable to “compensation structures
and amounts for persons in similar positions or roles at similar entities.” /d.

§ 30.16(b)(1)(v). The Special Master has concluded generally that, for Covered
Employees at Exceptional Assistance Recipients. cash salaries should generally target the
50th percentile. Such levels of cash salaries balance the need to attract and retain talent
with the need for compensation structures that reflect the circumstances of Exceptional
Assistance Recipients

In conducting the review of the proposed amounts of cash salaries, the Special
Master made use of the resources described in Part II. Based on this review, the Special
Master has concluded that BofA’s proposed cash salaries are inconsistent with the Public
Interest Standard because the amounts potentially payable to certain Covered Employees
cannot be supported by comparison to cash salaries provided to similarly situated
employees of similar companies.

In addition, the Special Master has considered whether BofA’s proposed salaries
reflect the current or prospective contributions of an employee to the value of the
[company],” id. § 30.16(b)(1)(vi). Under the BofA proposal, each Covered Employee
would receive either a $700,000 or $950,000 cash salary. The Special Master has
concluded that the proposed salaries are inconsistent with the Public Interest Standard
because they do not differentiate among employees in a manner that reflects their
individual values to the Company.

Finally, because cash salaries do not create incentives for employees to pursue
long-term value creation or financial stability, the amount of cash salary provided to a
Covered Employee must be considered in comparison to the portion of compensation that
is “performance-based over a relevant period.” Jd. § 30.16(b)(1)(iv). The Special Master

AT


(4) 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 Exceptional
Assistance 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. /d. §
30.16(b)(L)(iv).

(5) Comparable structures and payments. The compensation structure and amount
payable 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. Id. §
30.16(b)(1)(v).

(6) Employee contribution to TARP recipient value. The compensation structure and
amount payable should reflect the current or prospective contributions of an
employee to the value of the Exceptional Assistance 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
recipient. Id. § 30.16(b)(1)(vi).

The Rule provides that the Special Master shall have discretion to determine the
appropriate weight or relevance of a particular principle depending on the facts and
circumstances surrounding the compensation structure or payment for a particular
employee. /d. § 30.16(b). To the extent two or more principles may appear inconsistent
in a particular situation, the Rule requires that the Special Master exercise his discretion
in determining the relative weight to be accorded to each principle. Id.

The Rule provides that the Special Master may, in the course of applying these
principles, take into account other compensation structures and other compensation
earned, accrued, or paid, including compensation and compensation structures that are
not subject to the restrictions of section 111 of EESA. For example, the Special Master
may consider payments obligated to be made by the Company pursuant to certain legally
binding rights under valid written employment contracts entered into prior to enactment
of the statute and the accompanying Rule. Jd. § 30.16(a)(3).

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Pursuant to the Interim Final Rule, the Company may, within 30 days of the date
hereof, request in writing that the Special Master reconsider the determinations set forth
in the Determination Memorandum. If the Company does not request reconsideration
within 30 days, these initial determinations will be treated as final determinations. Id. §

30.16(c)(1).
Very , f

Kenneth R. Feinberg
Office of the Special Master
for TARP Executive Compensation

Attachments

Mr. Thomas M. Ryan.
Jana J. Litsey, Esquire
Mr. Mark Behnke

Q


during and after their tenures. Accordingly, as described in Exhibits I and IT, the
compensation structures the Special Master has determined to be consistent with the
Public Interest Standard prohibit further 2009 accruals for Covered Employees under
supplemental retirement plans or Company credits to other “non-qualified deferred
compensation” plans following the date of this Determination Memorandum.

f. Severance Arrangements

The Special Master has concluded that an increase in the amounts payable under
these arrangements would be inconsistent with the principle that compensation should be
performance-based, id. § 30.16(b)(1)(iv), and that payments should be appropriately
allocated among the elements of compensation, id. § 30.16(b)(1)(iii). Accordingly, for
the compensation structures described in Exhibits I and II to be consistent with the
Public Interest Standard, the Company must ensure that 2009 compensation structures for
these employees do not result in an increase in the amounts payable pursuant to these
arrangements.

2. Certain other Covered Employees

The proposals for two Covered Employees were reviewed and analyzed by the
Special Master separately because of one employee’s existing cash guarantee and the
other’s unique role in the Company, respectively.

a. Covered Employee with a Cash Guarantee

The Special Master has concluded that guaranteed cash payments are not
“performance-based over a relevant performance period,” /d. § 30.16(b)(1)(iv). Indeed,
the principles identified in the Rule are generally inconsistent with the payment of large
guaranteed cash amounts. BofA proposed that the Covered Employee’s guarantee be
restructured into a $700,000 cash salary, with the remainder delivered as a stock salary
with the same terms as the stock salary proposal for other Covered Employees.

Such a restructuring would be consistent with the principle that cash guarantees
are generally disfavored, but inconsistent with the Special Master’s conclusion that the
cash portion of a Covered Employee’s compensation that is not performance-based
generally should not exceed $500,000. See /d. § 30.16(b)(1 (iii). As a result, the
proposed restructuring is inconsistent with the Public Interest Standard.

The Special Master has determined that, with respect to this employee, a
restructuring of the cash guarantee providing a cash salary of less than $500,000, with the
remainder of the “guarantee” paid as stock salary, would be consistent with the Public
Interest Standard. In addition, the Covered Employee’s compensation structures, will
also be subject to the limitations described in Parts IV.A.4 (“other compensation and
perquisites), [V.A.5 (non-qualified deferred compensation), and [V.A.6 (severance plans)
above.

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In addition, the structures determined by the Special Master to be consistent with
the Public Interest Standard include grants of stock in BofA. It is critical that these
compensation structures achieve the Rule’s objective of “appropriate[ly] allocat[ing] the
components of compensation [including] long-term incentives, as well as the extent to
which compensation is provided in...equity,” id. § 30.16(b)(iii).

BofA must have in effect a policy that would prohibit an employee from engaging
in any hedging, derivative or other transactions that have an equivalent economic effect
that would undermine the incentives created by the compensation structures set forth in
Exhibits I and II. Such transactions would be contrary to the principles set forth in the
Rule.

B. Additional Requirements

In addition to the requirements set forth above, pursuant to the requirements of the
Rule, BofA is required to institute the following corporate governance reforms:

(1) Compensation Committee; Risk Review. BofA must maintain a compensation
committee comprised exclusively of independent directors. Every six months, the
committee must discuss, evaluate, and review with BofA’s senior risk officers any
risks that could threaten the value of BofA. In particular, the committee must
meet every six months to discuss, evaluate, and review the terms of each
employee compensation plan to identify and limit the features in (1) SEO
compensation plans that could lead SEOs to take unnecessary and excessive risks
that threaten the value of BofA; (2) SEO or other employee compensation plans
that could encourage behavior focused on short-term results and not on long-term
value creation; and (3) employees’ compensation plans that could encourage the
manipulation of BofA’s reported earnings to enhance the compensation of any of
the employees. Jd. § 30.4; id. § 30.5.

(2) Disclosure with Respect to Compensation Consultants, The compensation
committee must disclose to Treasury an annual narrative description of whether
the Company, its Board of Directors, or the committee has engaged a
compensation consultant during the past three years. If so, the compensation
committee must detail the types of services provided by the compensation
consultant or any affiliate, including any “benchmarking” or comparisons
employed to identify certain percentile levels of compensation. /d. § 30.11(c).

(3) Disclosure of Perquisites. BofA must provide to Treasury an annual disclosure of
any perquisite whose total value for BofA’s fiscal year exceeds $25,000 for each
of the Covered Employees. BofA must provide a narrative description of the
amount and nature of these perquisites, the recipient of these perquisites, and a
justification for offering these perquisites (including a justification for offering the
perquisite, and not only for offering the perquisite with a value that exceeds
$25,000). Id. § 30.11(b).

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e The employees will be prohibited from engaging in any hedging or derivative
transactions involving BofA stock that would undermine the long-term
performance incentives created by the compensation structures.

¢ BofA may not provide a tax “gross up” of any kind to these employees.

e Atleast once every year, the Compensation and Benefits Committee of BofA’s
Board of Directors must provide to the Department of the Treasury a narrative
description identifying each compensation plan for its senior executive officers,
and explaining how the plan does not encourage the senior executive officers to
take unnecessary and excessive risks that threaten BofA’s value.

These requirements are described in further detail in the attached Determination
Memorandum.

The Special Master’s review has been guided by a number of considerations,
including each of the principles articulated in the Interim Final Rule. Jd. § 30.16(b)(1).
The following principles were of particular importance to the Special Master in his
determinations with respect to BofA’s compensation structures:

¢ = Performance-based compensation. The overwhelming majority of approved
compensation depends on BofA’s performance, and ties the financial incentives
of BofA employees to the overall performance of the company. A majority of the
salary paid to employees under these structures will be paid in the form of stock;
and, because the stock salary will become transferable only in three equal, annual
installments beginning on the second anniversary of the date the salary stock is
earned (with each installment redeemable one year earlier if BofA repays its
TARP obligations), the ultimate value realized by the employee will depend on
BofA’s performance over the long term. Guaranteed amounts payable in cash, in
contrast, are generally rejected. Id. § 30.16(b)(1)(iv).

¢ Taxpayer return, The compensation structures approved by the Special Master
reflect the need for BofA to remain a competitive enterprise and, ultimately, to be
able to repay TARP obligations. The Special Master has determined that the
approved compensation structures are competitive when compared to those
provided to similarly situated employees of similarly situated companies.
Overall, the compensation structures generally provide for total compensation
packages that target the 50th percentile when compared to other executive officers
and employees. Id. § 30.16(b)(1)(ii).

© Appropriate Allocation. The total compensation payable to BofA employees is
weighted heavily toward long-term structures that are tied to BofA’s performance
and are easily understood by shareholders. As a general principle, guaranteed
income is rejected. Fixed compensation payable to BofA employees should
consist only of cash salaries at sufficient levels to attract and retain employees and
provide them a reasonable level of liquidity.


Base salary paid in cash should not exceed $500,000 per year, except in
appropriate cases for good cause shown. Overall, cash compensation must be
significantly reduced from cash amounts paid in 2008. In BofA’s case, cash
compensation for these employees will decrease 94% from 2008 levels

Total compensation for each individual must both reflect the individual’s value to
BofA and be appropriate when compared with total compensation provided to
persons in similar positions or roles at similar entities. Overall, total direct
compensation must be significantly reduced from 2008 amounts. In BofA’s case,
total direct compensation for these employees will decrease 62% from 2008
levels. Id. § 30.16(a)(3)(i).

If—and only if—the employee achieves objective performance metrics developed
and reviewed in consultation with the Office of the Special Master, employee may
be eligible for long-term incentive awards. These awards, however, must be
payable in the form of restricted stock that will be forfeited unless the employee
stays with BofA for at least three years following grant, and may only be
redeemed in 25% installments for each 25% installment of BofA’s TARP
obligations that are repaid. Such long-term incentive awards may not exceed one-
third of total annual compensation.

Any and all incentive compensation paid to employees will be subject to recovery
or “clawback” if the payments are based on materially inaccurate financial
statements or any other materially inaccurate performance metrics, or if the
employee is terminated due to misconduct that occurred during the period in
which the incentive was earned.

Any and all “other” compensation and perquisites will not exceed $25,000 for
each employee (absent exceptional circumstances for good cause shown).

No severance benefit to which an employee becomes entitled in the future may
take into account a cash salary increase, or any payment of stock salary, that the
Special Master has approved for 2009.

No additional amounts in 2009 may be accrued under supplemental executive
retirement plans or credited by the company to other “non-qualified deferred
compensation” plans after the date of the Determination Memorandum.

The Special Master has also determined that, in order for the approved

compensation structures to satisfy the standards of 31 C.F.R. § 30.16(a)(3), BofA must
adopt policies applicable to these employees as follows:

The achievement of any performance objectives must be certified by the
Compensation and Benefits Committee of BofA’s Board of Directors, which is
composed solely of independent directors. These performance objectives must be
reviewed and approved by the Office of the Special Master.

i)


§ 30.16(b)(1)(v), and the “prospective contributions of [the employee] to the value of the
exceptional assistance recipient, taking into account multiple factors such as...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 recipient.” /d. § 30.16(b)(1)(vi).?

The Special Master has also reviewed the structure of BofA’s stock salary
proposal. The Rule requires that the Special Master consider whether an appropriate
portion of an employee’s compensation is allocated to long-term incentives. Id. §
30.16(b)(1)(iii). Stock salary that can be liquidated too soon would not be performance-
based over the relevant performance period to provide such a long-term incentive. See Id.
§ 30.16(b)(1)(iv). Instead, such stock salary could incentivize employees to pursue short-
term results instead of long-term value creation by paying excessive benefits to
employees for short-term increases in share price. See /d. § 30.16(b)(1)(i). Under the
Company’s proposal, 40% of stock salary would be redeemable one-year after being
granted. The Special Master has concluded that a one year holding period is insufficient
to provide a long-term incentive and could result in payments that would be inconsistent
with the Public Interest Standard.

As described in Exhibit I and IT, the compensation structures the Special Master
has determined to be consistent with the Public Interest Standard require that, at a
minimum, stock salary only become redeemable in three equal, annual installments
beginning on the second anniversary of grant, with each installment redeemable one year
earlier if BofA repays its TARP obligations.

c. Annual Long-Term Incentive Awards

The Special Master has reviewed BofA’s proposed annual long-term incentive
awards in light of the principle that performance-based compensation should be based on
“performance metrics [that are] measurable, enforceable, and actually enforced if not
met.” Jd. § 30.16(b)(1)(iv). The Special Master, also has evaluated BofA’s proposed
awards by application of recently adopted international standards that provide that
incentive compensation should generally be payable over a period of three years, as well
as the Rule’s principle that performance-based compensation should be payable “over a
relevant performance period,” id.

Although BofA proposed individually tailored performance metrics to calculate
the size of long-term restricted stock awards, which the Special Master concluded are
generally consistent with the Public Interest Standard, the restricted stock would vest
after only two years of service. The Special Master has concluded that BofA’s proposed
annual long-term incentive awards are inconsistent with the Public Interest Standard
because a two-year period of service is insufficient.

As described in Exhibits I and I, the structures the Special Master has

determined to be consistent with the Public Interest Standard include an annual long-term
incentive award payable only upon the achievement of specified, objective performance

See supra, note 1.

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b. CEO

The CEO has publicly announced his retirement from the Company. In addition,
it is anticipated that he will receive a very substantial retirement compensation package
consisting of cash, equity and other payments, all agreed upon during the CEO’s lengthy
tenure with the Company and its predecessors. Accordingly, the Special Master has
determined that the payment of any amount of compensation to the CEO for 2009 is
inconsistent with the Public Interest Standard.

3. Departed Employees

In addition, eleven employees that would have been Covered Employees had
remained employed are no longer employed by the Company. With respect to those
employees, the Special Master has determined that cash salaries through the date of the
termination of employment, and payment of up to $25,000 in perquisites and “other”
compensation are consistent with the Public Interest Standard. No other payments to
these employees of any kind would be consistent with the Public Interest Standard. Any
exceptions to this limitation will require that the Company provide to the Office of the
Special Master an independent justification for the payment that is satisfactory to the
Special Master.

V. CORPORATE GOVERNANCE

As noted in Part II above, the Rule requires the Special Master to consider the
extent to which compensation structures are “performance-based over a relevant
performance period,” 31 C.F.R. § 30.16(b)(1)(iv). In light of the importance of this
principle, BofA must take certain additional corporate governance steps, including those
required by the Rule, to ensure that the compensation structures for the Covered
Employees, and the amounts payable or potentially payable under those structures, are
consistent with the Public Interest Standard.

A. Requirements Relating to Compensation Structures

In order to ensure that objective compensation performance criteria are
“measurable, enforceable, and actually enforced if not met,” id. § 30.16(b)(1)(iv), long-
term incentive awards may not be granted unless the Compensation and Benefits
Committee of BofA’s Board of Directors determines to grant such an award in light of
the employee’s performance as measured against objective performance criteria that the
Committee has developed and reviewed in consultation with the Office of the Special
Master. This evaluation must be disclosed to shareholders in, and certified by the
Committee as part of, BofA’s securities filings. In addition, the Committee must retain
discretion with respect to each employee to reduce (but not to increase) the amount of
any incentive award on the basis of its overall evaluation of the employee’s or BofA’s
performance (notwithstanding full or partial satisfaction of the performance criteria).

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