Overview of the Executive Compensation Provisions of the American Recovery and Reinvestment Act of 2009

On February 13, 2009, the House of Representatives and the Senate passed the economic stimulus bill (H.R. 1) known as “The American Recovery and Reinvestment Act of 2009.” President Obama is expected to sign the bill into law on Tuesday, February 17, 2009. The bill will significantly rewrite the original executive compensation and corporate governance provisions of Section 111 of the Emergency Economic Stabilization Act of 2008 (12 U.S.C. 5221, “EESA”) and will apply to all institutions that have received or will receive financial assistance under the Troubled Asset Relief Program (“TARP”). Among the most important changes instituted by the bill are new limits on the ability of TARP recipients to pay incentive compensation to up to 20 of the next most highly compensated employees in addition to their “senior executive officers,” a prohibition on termination of employment payments to senior executive officers and the five next most highly compensated employees, and a requirement that TARP recipients implement “say on pay” shareholder votes.

This memorandum briefly outlines Section 111 of EESA, as it would be revised. Please contact any of your other regular contacts at the firm if you have any questions concerning the implications of this legislation.