28394 Federal Register / Vol. 74, No. 113 / Monday, June 15, 2009 / Rules and Regulations 

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 June 15, 2009. Comment 

due date: August 14, 2009. 

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 erulemaking portal, http:// 

www.regulations.gov or by e-mail to 

executivecompensation

comments@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 http://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 

a.m. and 5 p.m. Eastern Time. You can 

make an appointment to inspect 

comments by telephoning (202) 622– 

0990. All comments, including 

attachments and other supporting 

materials, received are part of the public 

record and subject to public disclosure. 

You should submit only information 

that you wish to make available 

publicly. 

FOR FURTHER INFORMATION CONTACT: For 

further information regarding this 

interim 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; (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 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. 

mstockstill on PROD1PC66 with RULES3

Federal Register / Vol. 74, No. 113 / Monday, June 15, 2009 / Rules and Regulations 28395 

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 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 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 

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 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 

mstockstill on PROD1PC66 with RULES3

28396 Federal Register / Vol. 74, No. 113 / Monday, June 15, 2009 / Rules and Regulations 

restricted stock or other similar longterm 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 

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 

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 executivecompensation-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 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. 

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 

long-term 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 

mstockstill on PROD1PC66 with RULES3

Federal Register / Vol. 74, No. 113 / Monday, June 15, 2009 / Rules and Regulations 28397 

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. 

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 

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. 

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 sections 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 

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 

mstockstill on PROD1PC66 with RULES3

28398 Federal Register / Vol. 74, No. 113 / Monday, June 15, 2009 / Rules and Regulations 

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 

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) 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 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 June 

15, 2009 to fulfill a 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 alreadyestablished 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 

mstockstill on PROD1PC66 with RULES3

Federal Register / Vol. 74, No. 113 / Monday, June 15, 2009 / Rules and Regulations 28399 

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 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 shortterm 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 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 SarbanesOxley requires the forfeiture by a public 

company’s chief executive officer or the 

chief financial officer of any bonus, 

incentive-based, or equity-based 

compensation received during the 

twelve-month period following a 

materially non-compliant 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 

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 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 

mstockstill on PROD1PC66 with RULES3

28400 Federal Register / Vol. 74, No. 113 / Monday, June 15, 2009 / Rules and Regulations 

qualified plan, benefits under a broadbased benefit plan, bona fide overtime 

pay, and bona fide and routine expense 

reimbursements. Section 30.10 (Q–10) 

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 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 

the grant of a limited amount of longterm 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 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 ‘‘makewhole’’ 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 long-term restricted 

stock to the employees subject to this 

prohibition. Because many TARP 

recipients, especially smaller, familyowned 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 equitybased 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 equity-based 

compensation granted in fiscal years 

ending prior to June 15, 2009 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 

mstockstill on PROD1PC66 with RULES3

Federal Register / Vol. 74, No. 113 / Monday, June 15, 2009 / Rules and Regulations 28401 

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 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 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. 

Certain bonus, retention award, or 

incentive compensation may relate to a 

multi-year 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 that would otherwise be a 

short-term deferral, within the meaning 

of 26 CFR 1.409A–1(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 longterm 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 Web site, 

if the TARP recipient maintains a 

company Web site, before the later of 

ninety days after the closing date of the 

mstockstill on PROD1PC66 with RULES3

28402 Federal Register / Vol. 74, No. 113 / Monday, June 15, 2009 / Rules and Regulations 

agreement between Treasury and the 

TARP recipient or ninety days after June 

15, 2009. Section 30.1 (Q–1) of the 

Interim Final Rule defines an excessive 

or luxury expenditures 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). 

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 longterm restricted stock, the compensation 

structure is not required to be submitted 

for approval. For this purpose, annual 

compensation and the value of the longterm restricted stock are determined in 

the same manner as provided in the 

long-term 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 

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 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 postacquisition acquirer are treated as SEOs. 

For purposes of identifying the most 

highly compensated employees, the 

acquirer employees and the preacquisition 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 

mstockstill on PROD1PC66 with RULES3

Federal Register / Vol. 74, No. 113 / Monday, June 15, 2009 / Rules and Regulations 28403 

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 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 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 U.S.C. 1001). In addition, 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. 

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, 

mstockstill on PROD1PC66 with RULES3

28404 Federal Register / Vol. 74, No. 113 / Monday, June 15, 2009 / Rules and Regulations 

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 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. 

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 June 15, 2009, 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 

June 15, 2009, and the enhanced golden 

parachute prohibition will not apply to 

amounts paid prior to June 15, 2009. 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 June 15, 2009. 

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 

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 

June 15, 2009, 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 June 

15, 2009, 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 

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 

The information collection contained 

in the Interim Final Rule has been 

submitted to the Office of Management 

mstockstill on PROD1PC66 with RULES3

Federal Register / Vol. 74, No. 113 / Monday, June 15, 2009 / Rules and Regulations 28405 

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, DC 20503 (or by email 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 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 

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 (Pub. L. 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 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 

pre-established 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 

mstockstill on PROD1PC66 with RULES3

28406 Federal Register / Vol. 74, No. 113 / Monday, June 15, 2009 / Rules and Regulations 

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 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; 

(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 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 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, 

mstockstill on PROD1PC66 with RULES3

Federal Register / Vol. 74, No. 113 / Monday, June 15, 2009 / Rules and Regulations 28407 

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 

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 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 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 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 

mstockstill on PROD1PC66 with RULES3

28408 Federal Register / Vol. 74, No. 113 / Monday, June 15, 2009 / Rules and Regulations 

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). 

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 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 1.409A–3(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. 

(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 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 

mstockstill on PROD1PC66 with RULES3

Federal Register / Vol. 74, No. 113 / Monday, June 15, 2009 / Rules and Regulations 28409 

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; 

(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 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 equitybased 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). 

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 

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 

mstockstill on PROD1PC66 with RULES3

28410 Federal Register / Vol. 74, No. 113 / Monday, June 15, 2009 / Rules and Regulations 

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 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 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 

units 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 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 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 

mstockstill on PROD1PC66 with RULES3

Federal Register / Vol. 74, No. 113 / Monday, June 15, 2009 / Rules and Regulations 28411 

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 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); 

(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, 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. 

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 

mstockstill on PROD1PC66 with RULES3

28412 Federal Register / Vol. 74, No. 113 / Monday, June 15, 2009 / Rules and Regulations 

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%’’ 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 

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 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 September 14, 2009, and 

maintain a compensation committee 

during the remainder of the TARP 

period. If a compensation committee is 

already established before the later of 

the closing date or September 14, 2009, 

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 September 14, 

2009, 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 

mstockstill on PROD1PC66 with RULES3

Federal Register / Vol. 74, No. 113 / Monday, June 15, 2009 / Rules and Regulations 28413 

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 shortterm 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 shortterm results rather than long-term value 

creation, and how the 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 

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 shortterm 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 longterm value creation. The compensation 

committed is required to limit these 

features to ensure 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 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) (Q–4(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 

mstockstill on PROD1PC66 with RULES3

28414 Federal Register / Vol. 74, No. 113 / Monday, June 15, 2009 / Rules and Regulations 

compensation plan does not encourage 

the manipulation of reported earnings to 

enhance the compensation of any 

employee. 

(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. 

§ 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 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 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 

mstockstill on PROD1PC66 with RULES3

Federal Register / Vol. 74, No. 113 / Monday, June 15, 2009 / Rules and Regulations 28415 

schedule in paragraph (b) of this section 

is applicable to a TARP recipient during 

the TARP period 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 June 15, 

2009, 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 

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 June 15, 2009, 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 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. 

(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 June 15, 2009 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 June 15, 

2009 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 

mstockstill on PROD1PC66 with RULES3

28416 Federal Register / Vol. 74, No. 113 / Monday, June 15, 2009 / Rules and Regulations 

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 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 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 longterm 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 an SEO of a 

TARP recipient. Under Employee D’s written 

employment agreement executed before 

February 11, 2009, Employee D is 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 June 15, 2009 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 recipients 

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 (Q–10). TARP recipients that 

receive exceptional 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 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 

mstockstill on PROD1PC66 with RULES3

Federal Register / Vol. 74, No. 113 / Monday, June 15, 2009 / Rules and Regulations 28417 

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 (Q–10) 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 

foregoing, approval is not required with 

respect to an employee 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 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. 

(d) Prohibition on gross-ups. Except as 

explicitly permitted under this part, 

TARP recipients are prohibited from 

providing (formally or informally) grossups 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 September 14, 2009, 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 Web site, if the TARP 

recipient maintains a company Web 

site. 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 Web site, if the 

TARP recipient maintains a company 

Web site. This disclosure must continue 

through the TARP period (if the TARP 

recipient has an obligation), or through 

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 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 

mstockstill on PROD1PC66 with RULES3

28418 Federal Register / Vol. 74, No. 113 / Monday, June 15, 2009 / Rules and Regulations 

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 postacquisition 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). 

§ 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 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). 

(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 June 15, 2009 and 

ending with the last day of the TARP 

recipient’s fiscal year containing 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 

June 15, 2009 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 June 15, 2009 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; 

mstockstill on PROD1PC66 with RULES3

Federal Register / Vol. 74, No. 113 / Monday, June 15, 2009 / Rules and Regulations 28419 

(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 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 an 

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 June 15, 2009 and ending 

with the last day of the TARP recipient’s 

fiscal year containing that date; 

(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 

June 15, 2009 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 June 15, 

2009 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 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 June 15, 2009 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 

June 15, 2009 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 June 15, 2009 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 

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 June 15, 2009 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 U.S.C. 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 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]; 

(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 

mstockstill on PROD1PC66 with RULES3

28420 Federal Register / Vol. 74, No. 113 / Monday, June 15, 2009 / Rules and Regulations 

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; 

(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 

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 U.S.C. 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, 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 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 

mstockstill on PROD1PC66 with RULES3

Federal Register / Vol. 74, No. 113 / Monday, June 15, 2009 / Rules and Regulations 28421 

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 

compensated employee is subject to the 

limitations under § 30.10 (Q–10). Initial 

requests for such approval must be 

submitted no later than August 14, 

2009. 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 June 15, 2009 

and are therefore not subject to review 

by the Special Master. 

(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 June 15, 2009), 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 June 15, 2009 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 equity-based compensation 

granted in fiscal years ending prior to 

June 15, 2009 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 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) (Q– 

30.10(e)(2) (certain legally binding 

rights under valid written employment 

contracts)), and amounts that were 

accrued or paid prior to June 15, 2009 

and are therefore not subject to review 

by the Special Master. 

(iii) Period from June 15, 2009 

through final determination. For the 

period from June 15, 2009 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 June 14, 2009 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 June 14, 2009, and if in addition 

the TARP recipient promptly complies 

mstockstill on PROD1PC66 with RULES3

28422 Federal Register / Vol. 74, No. 113 / Monday, June 15, 2009 / Rules and Regulations 

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 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 

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 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, shortterm 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 

mstockstill on PROD1PC66 with RULES3

Federal Register / Vol. 74, No. 113 / Monday, June 15, 2009 / Rules and Regulations 28423 

different for different positions and for 

different employees, but generally a 

significant portion of total 

compensation should be performancebased 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. 

(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 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 June 15, 2009. 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 

June 15, 2009. To the extent previous 

contractual provisions are not 

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 June 15, 2009. Certain 

bonus payments may relate to a service 

period beginning before and ending 

after June 15, 2009. In these 

circumstances, the employee will not be 

treated as having accrued the bonus 

payment on or after June 15, 2009 if the 

bonus payment is at least reduced to 

reflect the portion of the service period 

that occurs after June 15, 2009. If the 

employee is an 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. 

Andrew Mayock, 

Executive Secretary. 

[FR Doc. E9–13868 Filed 6–12–09; 8:45 am] 

BILLING CODE 4810–25–P 

mstockstill on PROD1PC66 with RULES3