A New Era for Executive Compensation: Recovery Plan's Retroactive Restrictions and Say-on-Pay Mandate

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The American Recovery and Reinvestment Act of 2009 (Recovery Act) executive compensation and corporate governance provisions retroactively amend the requirements under the Emergency Economic Stabilization Act of 2008 (Stabilization Act). The provisions impact recipients of federal funds under the programs authorized by the Stabilization Act, formerly known as the TARP programs. The U.S. Department of the Treasury (Treasury) published executive compensation regulations under the Stabilization Act and new regulations to reflect the amendments of the Recovery Act are expected shortly. Given the retroactive application of the amendments, Treasury is under pressure to provide interpretive guidance to hundreds of institutions, and dozens of individuals, covered by the new law.

Notwithstanding the absence of final regulations, the Securities and Exchange Commission (SEC), concurring with Senator Dodd’s1 assertion that the Recovery Act’s say on-pay provisions are immediately effective, has issued compliance disclosure interpretations2 to guide public company recipients of TARP funds during the current proxy season.

Below we discuss the executive compensation and corporate governance restrictions under the Recovery Act. For more information about the government intervention efforts in response to the financial crisis, please see our Client Alerts and resources at Financial Crisis Legal Updates and News.

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