Executive Compensation Under the Bailout Bill

Reclaiming Executive Bonuses

If the executive of a failed financial institution received a bonus based on information later proven to be MATERIALLY INACCURATE, the U.S. Government could go after the bonus money. But not the base salary.

Put another way, if upon valuing a firm's statement of earnings, the federal government decides it is materially inaccurate for 2005 because the value of the mortgage-backed securities was wrong, then the executive bonuses, based on the statement of earnings, can be "recovered."

This bill allows the U.S. Government to go after executive bonus or incentive pay that was based on "materially inaccurate" information. There is no limit on who that applies to. So the executives from two or four years ago who made "materially inaccurate" statements can have their big bonuses taken from them, too, as long as their firm later requires federal rescuing.

So, to get the bonus money back (and not the salary), there would need to be MATERIALLY INACCURATE information from the company, which could be made in a number of ways that Congress has not decided to fully list. And it would not need to be materially inaccurate at the time. It could be "LATER PROVEN TO BE MATERIALLY INACCURATE." The information could be statements of earning, gains, or OTHER CRITERIA. The last item is capitalized because it leaves an open door for interpretation. It could be taken to mean, conceivably, anything a bonus is based on, including media interviews that caused the stock price to move. Yes, it is rather a stretch. But still a possibility.

In short, it is more than I expected in terms of socking it to Wall Street fat cats.

Golden Parachutes

All financial firms that need U.S. Government bailout will not have "golden parachute payments to their executives while the U.S. Government stills holds stock in your firm. The least they could do, I'd say.

See the exact language below.

(B) 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; and
(C) 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.