[Federal Register Volume 74, Number 113 (Monday, June 15, 2009)]
[Rules and Regulations]
[Pages 28394-28423]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-13868]



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Part III





Department of the Treasury





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31 CFR Part 30



TARP Standards for Compensation and Corporate Governance; Interim Final 
Rule

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

[[Page 28394]]


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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.

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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 e-rulemaking portal, http://www.regulations.gov or by e-mail 
to <a href="/cdn-cgi/l/email-protection#52372a373127263b2437313d3f22373c2133263b3d3c313d3f3f373c262112363d7c26203733217c353d24"><span class="__cf_email__" data-cfemail="72170a171107061b0417111d1f02171c0113061b1d1c111d1f1f171c060132161d5c06001713015c151d04">[email protected]</span></a> 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.

[[Page 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 Sec.  30.17 (Q-17) of the Interim Final Rule, and the 
discussion of Sec.  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

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restricted stock or other similar long-term incentive arrangements; (2) 
require the vesting schedule of this restricted stock to be based on 
the financial institution's satisfying repayment obligations, 
protecting taxpayer interests, and meeting lending and stability 
standards; (3) require full disclosure of executive compensation 
structure and strategy and a non-binding shareholder resolution 
approving or disapproving the structure and strategy; (4) require 
provisions for clawback of bonuses and incentive compensation awarded 
to SEOs if based on materially 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 executive-compensation-related provisions that are 
specifically directed at TARP recipients into a single rule 
(superseding all prior rules and guidance), and utilizes the discretion 
granted to the Secretary under the ARRA to adopt additional standards, 
some of which are adapted from principles set forth in the February 
2009 Treasury Guidance.

III. The Interim Final Rule

    This Interim Final Rule revises in its entirety 31 CFR Part 30, 
which comprises Treasury's regulations implementing section 111 of 
EESA.

A. Overview of Statutory Provisions

    Generally, section 111 of EESA, as amended by ARRA, imposes 
corporate governance and executive compensation requirements on TARP 
recipients and requires 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 Sec.  30.17 (Q-17), and the discussion of Sec.  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

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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 Sec.  
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 Sec.  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

[[Page 28398]]

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, Sec.  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, 
Sec.  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), Sec.  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 Sec.  30.4 (Q-4) of the Interim 
Final Rule allows for the continued maintenance of already-established 
compensation committees. Section 30.4 (Q-4) of the Interim Final Rule 
also, in accordance with section 111(c)(3), provides an exception for 
certain private company TARP recipients. Thus, Sec.  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, 
Sec.  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

[[Page 28399]]

short-term results rather than long-term value creation. In addition, 
Sec.  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 short-term 
results rather than long-term value creation, and (3) employee 
compensation plans that could encourage the manipulation of reported 
earnings of the TARP recipient to enhance the compensation of an 
employee.
    Sections 30.4 (Q-4) and 30.7 (Q-7) of the Interim Final Rule 
require that the compensation committee certify annually that it has 
completed the reviews of the SEO compensation plans and the employee 
compensation plans as outlined above. Section 30.7 (Q-7) of the Interim 
Final Rule also provides that TARP recipients with securities 
registered with the SEC pursuant to the Federal securities laws must 
provide these disclosures and certifications in the Compensation 
Committee Report required pursuant to Item 407 of Regulation S-K under 
the Federal securities laws (17 CFR 229.407) and to Treasury. Section 
30.7 (Q-7) of the Interim Final Rule requires that TARP recipients that 
are smaller reporting companies or do not have securities registered 
with the SEC 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), Sec.  30.8 (Q-8) of the Interim 
Final Rule requires a TARP recipient to ensure that any bonus, 
retention award, or incentive compensation paid or accrued during the 
TARP period to a SEO or one of the next twenty most highly compensated 
employees is subject to a provision for recovery or ``clawback'' by the 
TARP recipient if the payments or accruals were based on materially 
inaccurate financial statements or any other materially inaccurate 
performance metric criteria. Section 30.8 (Q-8) of the Interim Final 
Rule deems that bonuses, retention awards, and incentive compensation 
are paid or accrued to a SEO or any one of the next twenty most highly 
compensated employees during the TARP period when the SEO or one of the 
next twenty most highly compensated employees obtains a legally binding 
right to that payment during the TARP period.
    This clawback provision differs from the clawback provision 
required under section 304 of the Sarbanes-Oxley Act of 2002 (Sarbanes-
Oxley) (Pub. Law No. 107-204). Section 304 of Sarbanes-Oxley requires 
the forfeiture by a public company's chief executive officer or the 
chief financial officer of any bonus, incentive-based, or 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), Sec.  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), Sec.  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

[[Page 28400]]

qualified plan, benefits under a broad-based 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 long-term 
restricted stock as an exception to the bonus, incentive compensation, 
and retention award restrictions.
    This inclusion of a stock plan in the definition of an incentive 
compensation plan does not restrict the TARP recipient's ability to pay 
salary or other permissible payments in the form of stock or other 
property, even if the stock is issued pursuant to a stock plan. In 
addition, the payment may be made in stock that is subject to holding 
periods or transferability restrictions, such as not permitting the 
stock to be transferred for a specified number of years, until a 
specified event occurs (such as the employee's retirement, or a 
specified number of years after an employee's retirement or other 
termination of employment), or until certain TARP fund repayment 
hurdles are met. However, the payment must still be payment of salary 
or another permissible amount. Accordingly, the amount of the future 
payment must be denominated in dollars, rather than in a number of 
shares. For example, an employee could be entitled to a salary of 
$5,000 per week, half payable in cash and half payable in stock valued 
at $2,500 on each salary payment date. In addition, as salary, the 
stock or other property cannot be subject to a substantial risk of 
forfeiture or any requirement of future services (and thus the grant of 
such stock will not be treated as a retention award either), as 
distinguished from a restriction on transferability. The same analysis 
would apply to a grant of a stock unit (such as phantom stock or a 
restricted stock unit) with similar characteristics to the salary 
payment arrangement described above, in lieu of a grant of the same 
number of shares. Accordingly, the stock unit could not be subject to a 
substantial risk of forfeiture or other requirement of continued 
services, and would be payable at a fixed date in the future (and the 
arrangement would otherwise need to comply with the requirements of 
section 409A of the Internal Revenue Code (26 U.S.C. 409A)). However, 
such a structure generally will not be feasible during 2009 due to the 
restrictions under section 409A of the Internal Revenue Code (26 U.S.C. 
409A).
    Section 30.1 (Q-1) generally defines a retention award as any 
payment to an employee that is not payable periodically to an employee 
for service performed by the employee at a regular hourly, daily, 
weekly, monthly, or similar periodic rate, is contingent on the 
completion of a period of future service with the TARP recipient or the 
completion of a specific project or other activity of the TARP 
recipient, and is not based on the performance of the employee (other 
than a requirement that the employee not be separated from employment 
for cause) or the business activities or value of the TARP recipient. 
Exceptions are provided for a contribution to or payment made from a 
qualified plan, or a payment from a benefit plan, overtime pay or 
reasonable expense reimbursement. An exception is also made for amounts 
accrued under a nonqualified deferred compensation plan, to the extent 
the amounts are accrued in the normal course of the employee's service 
at the TARP recipient and are not accrued by reason of a material 
enhancement of such benefits. An exception is not provided, however, 
for awards to new hires, including awards as part of a ``make-whole'' 
agreement intended to provide a newly hired employee a continuation of 
benefits accruing at a prior employer. Such awards are not structurally 
materially different from retention awards granted to current 
employees, which are intended to be subject to these restrictions.
    Pursuant to section 111(b)(3)(D)(i), Sec.  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, family-owned community banks 
as well as private financial institutions, would be unwilling or unable 
to award restricted stock, Sec.  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), Sec.  30.11 (Q-11) of the Interim Final Rule states 
that the value of the long-term restricted stock can be no greater than 
\1/3\ of the employee's total annual compensation. For purposes of 
determining annual compensation under the long-term restricted stock 
exception, all equity-based compensation granted will be included in 
the calculation only in the year in which it is granted, and will be 
included at its total fair market value on the grant date, so all 
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

[[Page 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), Sec.  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), Sec.  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 long-term restricted stock 
as an exception to the bonus payment limitation, the unit may be 
structured with a payment date no later than the later of the end of 
the short-term deferral period or the first date upon which the payment 
is permissible under these rules and the applicable terms of the 
agreement between the TARP recipient and Treasury, and the unit will 
not be subject to section 409A provided the payment terms are 
satisfied.
    Pursuant to section 111(d), Sec.  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

[[Page 28402]]

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, Sec.  30.11(a) (Q-11) of the Interim Final 
Rule requires that TARP recipients receiving exceptional financial 
assistance submit for approval the compensation payments and 
compensation structures of the SEO and most highly compensated 
employees subject to the bonus payment limitation, and the compensation 
structures of all other executive officers and 100 most highly 
compensated employees, for approval by the Office of the Special Master 
for TARP Executive Compensation. However, if a TARP recipient limits 
the annual compensation for any executive who is not a SEO or a most 
highly compensated employee subject to the bonus limitation provision 
to $500,000, with any additional compensation in long-term restricted 
stock, the compensation structure is not required to be submitted for 
approval. For this purpose, annual compensation and the value of the 
long-term restricted stock are determined in the same manner as 
provided in the long-term stock exception in Sec.  30.10 (Q-10) of the 
Interim Final Rule.
    Second, Sec.  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, Sec.  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, Sec.  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 post-acquisition acquirer are 
treated as SEOs. For purposes of identifying the most highly 
compensated employees, the acquirer employees and the pre-acquisition 
target employees who are employed at the acquirer (or anticipated to be 
employed at the acquirer) are aggregated and their most highly 
compensated employee status determined based upon the compensation 
earned during the most recently completed fiscal year at either the 
pre-acquisition acquirer or target, as appropriate.
    Pursuant to section 111(b)(4), Sec.  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

[[Page 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,

[[Page 28404]]

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

[[Page 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 e-mail to <a href="/cdn-cgi/l/email-protection#c9a6a0bba896babcaba4a0babaa0a6a789a6a4abe7aca6b9e7aea6bf"><span class="__cf_email__" data-cfemail="fe91978c9fa18d8b9c93978d8d979190be91939cd09b918ed0999188">[email protected]</span></a>) 
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.

0
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 Sec.  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 Sec.  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 Sec.  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.


Sec.  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.


Sec.  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

[[Page 28406]]

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,

[[Page 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

[[Page 28408]]

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

[[Page 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 equity-based compensation such 
as restricted stock units or stock appreciation rights, except for the 
payment of salary or other permissible payments in stock, stock units, 
or other property as described in paragraph (2) of this definition. An 
incentive plan does not include the payment of salary, but does include 
an arrangement under which an employee would earn compensation in the 
nature of a commission, unless such compensation qualifies as 
commission compensation (as defined above). 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

[[Page 28410]]

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

[[Page 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 Sec.  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

[[Page 28412]]

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.


Sec.  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 Sec.  30.4 (Q-4), Sec.  
30.5 (Q-5) and Sec.  30.7 (Q-7), as applicable, Sec.  30.6 (Q-6), and 
Sec.  30.8 (Q-8) through Sec.  30.11 (Q-11), and Sec.  30.15 (Q-15)), 
and section 111(e) (Sec.  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 Sec.  30.4 (Q-4), 
Sec.  30.5 (Q-5) and Sec.  30.7 (Q-7), as applicable) and section 
111(d) (Sec.  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.


Sec.  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.


Sec.  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

[[Page 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 short-term 
results rather than long-term value creation, the risks posed by 
employee compensation plans and how these risks were limited, including 
how these employee compensation plans do not encourage behavior focused 
on short-term results rather than long-term value creation, and how the 
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 Sec.  30.4 (Q-4) shall apply.


Sec.  30.5  Q-5: How does a TARP recipient comply with the requirements 
under Sec.  30.4 (Q-4) of this part that the compensation committee 
discuss, evaluate, and review the SEO compensation plans and employee 
compensation plans to ensure that the SEO compensation plans do not 
encourage the SEOs to take unnecessary and excessive risks that 
threaten the value of the TARP recipient, or that the employee 
compensation plans do not pose unnecessary risks to the TARP recipient?

    At least every six months, the compensation committee must discuss, 
evaluate, and review with the TARP recipient's senior risk officers any 
risks (including long-term as well as short-term risks) that the TARP 
recipient faces that could threaten the value of the TARP recipient. 
The compensation committee must identify the features in the TARP 
recipient's SEO compensation plans that could lead SEOs to take these 
risks and the features in the employee compensation plans that pose 
risks to the TARP recipient, including any features in the SEO 
compensation plans and the employee compensation plans that would 
encourage behavior focused on short-term results and not on long-term 
value creation. The compensation committed is required to limit these 
features to ensure 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.


Sec.  30.6  Q-6: How does a TARP recipient comply with the requirement 
under Sec.  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.


Sec.  30.7  Q-7: How does a TARP recipient comply with the 
certification and disclosure requirements under Sec.  30.4 (Q-4) of 
this part?

    (a) Certification. The compensation committee must provide the 
certifications required by Sec.  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 Sec.  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

[[Page 28414]]

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 Sec.  30.4 (Q-4)) to its primary 
regulatory agency and to Treasury.


Sec.  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.


Sec.  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.


Sec.  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

[[Page 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 Sec.  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 multi-year 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

[[Page 28416]]

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 
Sec.  30.1 (Q-1) of this part, the compensation related to the long-
term 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 long-term restricted stock).
    Example 2. TARP recipient sponsors an annual bonus program 
documented in a written plan. Under the bonus program, the board of 
directors retains the discretion to eliminate or reduce the bonus of 
any employee in the bonus pool. Employees B and C, both SEOs, are in 
the bonus pool for 2008. On January 15, 2009, the compensation 
committee determines the bonuses to which the employees of the 
division in which Employee B works are entitled, and awards Employee 
B a $10,000 bonus payable on June 1. Employee B has a legally 
binding right to the bonus as of February 11, 2009 and payment of 
the bonus is not subject to the limitation. However, as of February 
11, 2009, the board of directors has not met to determine which 
employees of the division in which Employee C works will be entitled 
to a bonus or the amount of such bonus. Accordingly, Employee C did 
not have a legally binding right to a bonus as of February 11, 2009 
and may be subject to the bonus payment limitation.
    Example 3. TARP recipient sponsors a written stock option plan 
under which stock options may be granted to SEOs designated by the 
compensation committee. Designations and grants typically occur at a 
meeting in August of every year, and no meeting occurred in 2009 
before August. Regardless of the existence of the general plan, no 
SEO had a legally binding right to a stock option grant for 2009 as 
of February 11, 2009 because no grants had been made under the plan. 
Accordingly, any 2009 grant will be subject to the limitation and is 
not permitted to be made.
    Example 4. Employee D is 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.


Sec.  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 Sec.  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 Sec.  30.10 
(Q-10). For this purpose, compensation payments and compensation 
structures

[[Page 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 Sec.  30.16 (Q-16). However, this 
approval requirement is not applicable to payments that are not subject 
to paragraph (a) of Sec.  30.10 (Q-10) due to the application of 
paragraph (e)(2) of Sec.  30.10 (Q-10) or the effective date provisions 
of Sec.  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 
Sec.  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 Sec.  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 Sec.  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 Sec.  30.4(c) (Q-
4), the board of directors must provide the disclosure under Sec.  
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) gross-ups to any of the SEOs and next twenty most highly 
compensated employees during the TARP period. For this purpose, 
providing a gross-up includes providing a right to a payment of such a 
gross-up at a future date, for example a date after the TARP period.


Sec.  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).


Sec.  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.


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

[[Page 28418]]

and the most highly compensated employees to whom any of the 
requirements of section 111 of EESA and this Interim Final Rule apply 
shall be redetermined as of the date of the acquisition. The 
redetermined SEOs and most highly compensated employees of the post-
acquisition acquirer shall consist of the PEO and PFO of the post-
acquisition acquirer, plus the applicable number of next most highly 
compensated employees determined by aggregating the post-acquisition 
employees of the acquirer (to include the pre-acquisition employees of 
the target employed by the acquirer, or anticipated to be employed by 
the acquirer), and ranking such employees in order of compensation for 
the immediately preceding fiscal year of the pre-acquisition target or 
pre-acquisition acquirer, as appropriate. In the case of an asset 
acquisition, the entity or entities to whom the target's assets are 
transferred shall be treated as the direct recipient of the financial 
assistance for purposes of determining which other related entities are 
treated, in the aggregate, as the TARP recipient under the definition 
of ``TARP recipient'' in Sec.  30.1 (Q-1).


Sec.  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 Sec.  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 Sec.  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 Sec.  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;

[[Page 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 Sec.  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

[[Page 28420]]

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.)''


Sec.  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

[[Page 28421]]

that the compensation structure and payments satisfy the applicable 
limitations under Sec.  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 Sec.  
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 Sec.  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 Sec.  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 Sec.  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 Sec.  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

[[Page 28422]]

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, 
short-term and long-term incentives, as well as the extent to which 
compensation is provided in cash, equity or other types of compensation 
such as executive pensions, other benefits, or perquisites, based on 
the specific role of the employee and other relevant circumstances, 
including the nature and amount of current compensation, deferred 
compensation, or other compensation and benefits previously paid or 
awarded. The appropriate allocation may be different for different 
positions and for different employees, but generally, in the case of an 
executive or other senior level position a significant portion of the 
overall compensation should be long-term compensation that aligns the 
interest of the employee with the interests of shareholders and 
taxpayers.
    (iv) Performance-based compensation. An appropriate portion of the 
compensation should be performance-based over a relevant performance 
period. Performance-based compensation should be determined through 
tailored metrics that encompass individual performance and/or the 
performance of the TARP recipient or a relevant business unit taking 
into consideration specific business objectives. Performance metrics 
may relate to employee compliance with relevant corporate policies. In 
addition, the likelihood of meeting the performance metrics should not 
be so great that the arrangement fails to provide an adequate incentive 
for the employee to perform, and performance metrics should be 
measurable, enforceable, and actually enforced if not met. The 
appropriate allocation and the appropriate performance metrics may be

[[Page 28423]]

different for different positions and for different employees, but 
generally a significant portion of total compensation should be 
performance-based compensation, and generally that portion should be 
greater for positions that exercise higher levels of responsibility.
    (v) Comparable structures and payments. The compensation structure, 
and amount payable where applicable, should be consistent with, and not 
excessive, taking into account compensation structures and amounts for 
persons in similar positions or roles at similar entities that are 
similarly situated, including, as applicable, entities competing in the 
same markets and similarly situated entities that are financially 
distressed or that are contemplating or undergoing reorganization.
    (vi) Employee contribution to TARP recipient value. The 
compensation structure, and amount payable where applicable, should 
reflect the current or prospective contributions of an employee to the 
value of the TARP recipient, taking into account multiple factors such 
as revenue production, specific expertise, compliance with company 
policy and regulation (including risk management), and corporate 
leadership, as well as the role the employee may have had with respect 
to any change in the financial health or competitive position of the 
TARP recipient.
    (2) Further guidance. The Secretary reserves the discretion to 
modify or amend the foregoing principles through notice, announcement 
or other generally applicable guidance, provided that such guidance 
shall apply only prospectively from its date of publication and shall 
not provide a basis for reconsideration of a determination of the 
Special Master, except as the Special Master deems appropriate in light 
of such modification or amendment.
    (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.


Sec.  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 Sec.  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


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