THE BLOG
12/03/2008 08:58 am ET | Updated May 25, 2011

Golden Parachutes, Even For Bailed-Out Execs, Are Alive And Well

Thought everyone might find this interesting. Apparently 'Golden Parachutes' haven't been ruled out for failing or failed institutions:

To summarize this, the executives can get a huge bonus or salary or golden parachute, all they have done is not make it tax deductible if it is over $500,000. They still get to pay them. There is an excise tax on the exec.
  • Treasury announces executive compensation rules under bailout programs
  • Treasury Release 2008-10-14-9-5-0-19994
  • As discussed at the recently enacted Emergency Economic Stabilization Act (Act) included a host of new tax compensation rules for companies participating in the various bailout programs authorized by the Act. A new Treasury release announces the development of three programs under the Act and corresponding executive compensation and corporate governance standards. These standards generally apply to the chief executive officer, chief financial officer, plus the next three most highly compensated executive officers. The release indicates that additional guidance concerning the new tax rules will be forthcoming from IRS. A description of the three programs and the associated tax restrictions follow:

    Troubled Asset Auction Program. The release states that Treasury is continuing to develop a program to purchase troubled mortgage-related assets through an auction format, and will be issuing program guidance for this program in the coming weeks. In the meantime, it is issuing guidance for the executive compensation requirements that will apply to firms participating in this program. As prescribed by the Act, any financial institution that sells more than $300 million of troubled assets to the Treasury via an auction is prohibited from entering into new executive employment contracts that include golden parachutes for the term of the program. Treasury is releasing Treasury Notice 2008-TAAP regarding this restriction. Furthermore, under the Act, (1) the financial institution may not deduct for tax purposes executive compensation in excess of $500,000 for each senior executive, (2) the financial institution may not deduct certain golden parachute payments to its senior executives and (3) a 20% excise tax will be imposed on the senior executive for these golden parachute payments. IRS has issued a notice on these new tax rules, see _¶ 18_ .

    Capital Purchase Program. The release reveals that Treasury is issuing guidance for this program designed to provide equity capital under standardized terms directly to certain financial institutions, further strengthening their capital structures to facilitate their continued lending in the capital markets. Any financial institution participating in the Capital Purchase Program will be subject to more stringent executive compensation rules for the period during which Treasury holds equity issued under this program. The financial institution must meet certain standards, including: (1) ensuring that incentive compensation for senior executives does not encourage unnecessary and excessive risks that threaten the value of the financial institution; (2) required clawback of any bonus or incentive compensation paid to a senior executive based on statements of earnings, gains, or other criteria that are later proven to be materially inaccurate; (3) prohibition on the financial institution from making any golden parachute payment to a senior executive based on the Internal Revenue Code provision; and (4) agreement not to deduct for tax purposes executive compensation in excess of $500,000 for each senior executive. IRS will be issuing interim final rules for these executive compensation standards.

    Programs for Systemically Significant Failing Institutions. Treasury is developing this program to potentially provide direct assistance to certain failing firms on terms negotiated on a case-by-case basis. Treasury is issuing guidance for the executive compensation standards that will apply to the firms participating in such programs and their senior executives (Treasury Notice 2008-PSSFI). These standards are similar to the Capital Purchase Programs executive compensation standards described above, with one significant difference--golden parachutes will be defined more strictly to prohibit any payments to departing senior executives.

    *Source: Federal Taxes Weekly Alert, 10/16/2008, Volume 54, No. 42*

Go figure, that's Washington for you.