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 that the
compensation structure and payments satisfy the
applicable limitations under § 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 § 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 §
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)
(viii)
er 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 § 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 § 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 § 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)
(a)
3]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 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 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.