TARP Standards for Compensation and Corporate Governance; Correction, 63991-63993 [E9-29027]

Agencies

• DEPARTMENT OF THE TREASURY

[Federal Register Volume 74, Number 233 (Monday, December 7, 2009)]
[Rules and Regulations]
[Pages 63991-63993]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-29027]


-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

31 CFR Part 30

RIN 1505-AC09


TARP Standards for Compensation and Corporate Governance; 
Correction

AGENCY: Domestic Finance, Treasury.

ACTION: Correcting amendments.

-----------------------------------------------------------------------

SUMMARY: This document contains corrections to an interim final rule 
that was published in the Federal Register on Monday, June 15, 2009. 
The rule relates to certain standards for compensation and corporate 
governance applicable to financial institutions receiving funds under 
the Troubled Asset Relief Program (TARP).

DATES: Effective date: December 7, 2009.

FOR FURTHER INFORMATION CONTACT: Office of Domestic Finance, Treasury 
(202) 927-6618 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    On June 15, 2009, Treasury published an interim final rule (74 FR 
29394) entitled TARP Standards for Compensation and Corporate 
Governance. The interim final rule implemented certain provisions of 
section 111 of the Emergency Economic Stabilization Act of 2008, as 
amended (12 U.S.C. 5221) (EESA), which directs Treasury to establish 
executive compensation and corporate governance standards for entities 
receiving financial assistance under the TARP. This document makes 
several technical amendments to that interim final rule.

Need for Correction

    As published, the interim final rule contains errors that may prove 
to be misleading and are in need of correction. Section 30.1 of the 
interim final rule contained definitions applicable for purposes of the 
interim final rule. The definition of ``most highly compensated 
employee'' had provided that, for purposes of identifying a most highly 
compensated employee, senior executive officers (SEOs) were excluded. 
If this definition were applied literally with respect to Sections 
30.10(b)(1)(i) and (ii), the definition would have the effect of 
exempting SEOs from the bonus limitations applicable to certain most 
highly compensated employees. Such a result would be contrary to the 
intent of the regulation and the language of EESA. Accordingly, this 
provision is corrected to provide that the terms ``most highly 
compensated employee'' or ``most highly compensated employees'' mean 
the employee or employees of the TARP recipient whose annual 
compensation is determined to be the highest among all employees of the 
TARP recipient, provided that, solely for purposes of identifying the 
employees who are subject to any rule applicable to both the SEOs and 
one or more of the most highly compensated employees of the TARP 
recipient, SEOs of the TARP recipient are excluded when identifying the 
most highly compensated employee(s). So, for instance, if a provision 
is applicable only to the most highly compensated employee of the TARP 
recipient, the most highly compensated employee of the TARP recipient 
is subject to the provision regardless of whether the employee is also 
a SEO. In contrast, if a provision is applicable to the SEOs and a 
certain number of the most highly compensated employees of the TARP 
recipient, the SEOs (because they are already subject to the provision) 
are excluded for purposes of determining the most highly compensated 
employees that are also subject to the provision.
    Section 30.2 of the interim final rule provides that the 
requirements of section 111(c) (generally relating to the establishment 
and maintenance of an independent compensation committee and that 
committee's review of employee compensation plans, as well as the 
establishment of a company-wide excessive and luxury expenditures 
policy) apply through the last day of the TARP period for recipients 
with an obligation, and through the last day of the recipient's fiscal 
year including the sunset date (which is the date on which the 
authorities provided under EESA section 101 and 102 terminate, pursuant 
to EESA section 120, taking into account any extensions pursuant to 
EESA section 120(b)) for recipients that never had an obligation. 
However, the interim final rule erroneously stated that the 
requirements apply through the later of these dates. Because only one 
of these dates is potentially applicable to any specific TARP 
recipient, the ``later of'' language is inoperative, but may render the 
provision confusing. Accordingly, Section 30.2 is revised to more 
clearly state the applicable time periods.
    Section 30.13 of the interim final rule, relating to the 
requirement to permit a shareholder vote to approve certain executive 
compensation, is clarified to provide that TARP recipients must comply 
with the rules and regulations promulgated by the Securities and 
Exchange Commission (SEC) with respect to that requirement, but only to 
the extent the rules and regulations are applicable to the TARP 
recipient. Accordingly, a TARP recipient that is not subject to those 
rules because, for example, the TARP recipient is not required to 
register any securities with the SEC, is not required to permit such a 
vote.
    Section 30.15 of the interim final rule, relating to certain 
certifications that the principal executive officer and the principal 
financial officer must provide, is revised to provide that the 
certification must state that the TARP recipient has provided the 
Treasury Department a complete and accurate list of the SEOs and the 
twenty next most highly compensated employees for the current fiscal 
year, with the non-SEOs ranked in descending order of level of annual 
compensation. Accordingly, a list of the names of the SEOs and the 
twenty next most highly compensated employees is not required to be 
provided in the certification, but may be provided separately. Section 
30.15 is also corrected so that the model certification language 
reflects the deadlines set forth elsewhere in the regulation, and to 
correct certain cross-references.

Procedural Matters

    The June 15, 2009 interim final rule was promulgated pursuant to 
EESA, as amended, which provides for authority and facilities that the 
Secretary of the Treasury can use immediately to restore liquidity and 
stability to the financial system of the United States. Because of 
exigencies in the financial markets and to encourage entities to choose 
or continue to participate in the TARP, Treasury issued the interim 
final rule without prior notice and comment and without a delayed 
effective date pursuant to 5 U.S.C. 553(b)(B) and (d)(3). Treasury 
invited interested members of the public to submit comments on the rule 
and will carefully consider all comments in developing a final rule. 
The comment period for the interim final rule closed on August 14, 
2009.
    This document makes technical amendments to the Code of Federal 
Regulations that do not otherwise

[[Page 63992]]

impose or amend any requirements. Accordingly, Treasury finds that it 
would be contrary to the public interest, pursuant to 5 U.S.C. 
553(b)(B), to delay the issuance of these technical amendments pending 
an opportunity for public comment and good cause exists to dispense 
with this requirement. For the same reasons, pursuant to 5 U.S.C. 
553(d)(3), Treasury has determined that there is good cause for the 
amendments to become effective immediately upon publication.
    This document is not a ``significant regulatory action'' subject to 
review by the Office of Management and Budget under Executive Order 
12866, entitled Regulatory Planning and Review.
    The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.) 
generally requires an agency to prepare a regulatory flexibility 
analysis of any rule subject to notice and comment rulemaking 
requirements under the Administrative Procedure Act or any other 
statute unless the agency certifies that the rule will not have a 
significant impact on a substantial number of small entities. Because 
no notice of proposed rulemaking is required, the provisions of the 
Regulatory Flexibility Act do not apply.

List of Subjects in 31 CFR Part 30

    Executive compensation, Troubled assets.

0
Accordingly, 31 CFR part 30 is corrected by making the following 
correcting amendments:

PART 30--TARP STANDARDS FOR COMPENSATION AND CORPORATE GOVERNANCE

0
1. The authority citation for part 30 continues to read as follows:

    Authority: 12 U.S.C. 5221; 31 U.S.C. 321.


0
2. In Sec.  30.1, revise paragraph (1) of the definition of ``most 
highly compensated employee'' to read as follows:


Sec.  30.1  Q-1: What definitions apply in this part?

* * * * *
    Most highly compensated employee. (1) In general. The terms ``most 
highly compensated employee'' or ``most highly compensated employees'' 
mean the employee or employees of the TARP recipient whose annual 
compensation is determined to be the highest among all employees of the 
TARP recipient, provided that, solely for purposes of identifying the 
employees who are subject to any rule applicable to both the SEOs and 
one or more of the most highly compensated employees of the TARP 
recipient, SEOs of the TARP recipient are excluded when identifying the 
most highly compensated employee(s). For this purpose, a former 
employee who is no longer employed as of the first date of the relevant 
fiscal year of the TARP recipient is not a most highly compensated 
employee unless it is reasonably anticipated that such employee will 
return to employment with the TARP recipient during such fiscal year.
* * * * *

0
3. In Sec.  30.2, revise the second sentence to read as follows:


Sec.  30.2  Q-2: To what entities does this part apply?

    * * * For a TARP recipient that has had an obligation to the 
Federal government arising from financial assistance provided under the 
TARP, and no further financial assistance under the TARP, the 
requirements of section 111(c) (including portions of Sec.  30.4 (Q-4), 
Sec.  30.5 (Q-5) and Sec.  30.7 (Q-7), as applicable) and section 
111(d) (Sec.  30.12 (Q-12)) apply through the last day of the period 
during which that obligation remains outstanding; for a TARP recipient 
that has never had an obligation to the Federal government arising from 
financial assistance provided under the TARP, the requirements of 
section 111(c) (including portions of Sec.  30.4 (Q-4), Sec.  30.5 (Q-
5) and Sec.  30.7 (Q-7), as applicable) and section 111(d) (Sec.  30.12 
(Q-12)) apply through the last day of the TARP recipient's fiscal year 
including the sunset date. * * *

0
4. Revise Sec.  30.13 to read as follows:


Sec.  30.13  Q-13: What actions are necessary for a TARP recipient to 
comply with section 111(e) of EESA (the shareholder resolution on 
executive compensation requirement)?

    As provided in section 111(e) of EESA, any proxy or consent or 
authorization for an annual or other meeting of the shareholders of any 
TARP recipient that occurs during the TARP period must permit a 
separate shareholder vote to approve the compensation of executives, as 
required to be disclosed pursuant to the Federal securities laws 
(including the compensation discussion and analysis, the compensation 
tables, and any related material). To meet this standard, a TARP 
recipient must comply with any rules, regulations, or guidance 
promulgated by the SEC that are applicable to the TARP recipient.

0
5. In Sec.  30.15, revise the first sentence of paragraph (a)(5), 
Appendix A, paragraphs (i), (ii), (iii), (ix), (xi) and (xv) and 
Appendix B, paragraphs (ii), (iii), (ix), (xi) and (xv) to read as 
follows:


Sec.  30.15  Q-15: What actions are necessary for a TARP recipient to 
comply with the certification requirements of section 111(b)(4) of 
EESA?

* * * * *
    (a) * * *
    (5) Application to private TARP recipients. The rules provided in 
this section are also applicable to TARP recipients that do not have 
securities registered with the SEC pursuant to the Federal securities 
laws, except that the certifications under Appendix A, paragraph (x) 
and Appendix B, paragraph (x) of this section are not required for such 
TARP recipients. * * *
* * * * *

Appendix A to Sec.  30.15--Model Certification for First Fiscal Year 
Certification

* * * * *
    (i) The compensation committee of [identify TARP recipient] has 
discussed, reviewed, and evaluated with senior risk officers at 
least every six months during the period beginning on the later of 
September 14, 2009, or ninety days after the closing date of the 
agreement between the TARP recipient and Treasury and ending with 
the last day of the TARP recipient's fiscal year containing that 
date (the applicable period), the senior executive officer (SEO) 
compensation plans and the employee compensation plans and the risks 
these plans pose to [identify TARP recipient];
    (ii) The compensation committee of [identify TARP recipient] has 
identified and limited during the applicable period any features of 
the SEO compensation plans that could lead SEOs to take unnecessary 
and excessive risks that could threaten the value of [identify TARP 
recipient], and during that same applicable period has identified 
any features of the employee compensation plans that pose risks to 
[identify TARP recipient] and has limited those features to ensure 
that [identify TARP recipient] is not unnecessarily exposed to 
risks;
    (iii) The compensation committee has reviewed, at least every 
six months during the applicable period, the terms of each employee 
compensation plan and identified any features of the plan that could 
encourage the manipulation of reported earnings of [identify TARP 
recipient] to enhance the compensation of an employee, and has 
limited any such features;
* * * * *
    (ix) The board of directors of [identify TARP recipient] has 
established an excessive or luxury expenditures policy, as defined 
in the regulations and guidance established under section 111 of 
EESA, by the later of September 14, 2009, or ninety days after the 
closing date of the agreement between the TARP recipient and 
Treasury; this policy has been provided to Treasury and its primary 
regulatory agency; [identify TARP recipient] and its employees have 
complied with this policy during the applicable period; and any 
expenses that, pursuant to this policy,

[[Page 63993]]

required approval of the board of directors, a committee of the 
board of directors, an SEO, or an executive officer with a similar 
level of responsibility were properly approved;
* * * * *
    (xi) [Identify TARP recipient] will disclose the amount, nature, 
and justification for the offering during the period beginning on 
the later of the closing date of the agreement between the TARP 
recipient and Treasury or June 15, 2009 and ending with the last day 
of the TARP recipient's fiscal year containing that date of any 
perquisites, as defined in the regulations and guidance established 
under section 111 of EESA, whose total value exceeds $25,000 for any 
employee who is subject to the bonus payment limitations identified 
in paragraph (viii);
* * * * *
    (xv) [Identify TARP recipient] has submitted to Treasury a 
complete and accurate list of the SEOs and the twenty next most 
highly compensated employees for the current fiscal year and the 
most recently completed fiscal year, with the non-SEOs ranked in 
descending order of level of annual compensation, and with the name, 
title, and employer of each SEO and most highly compensated employee 
identified; and[.]
* * * * *

Appendix B to Sec.  30.15--Model Certification for Years Following 
First Fiscal Year Certification

* * * * *
    (ii) The compensation committee of [identify TARP recipient] has 
identified and limited during any part of the most recently 
completed fiscal year that was a TARP period any features of the SEO 
compensation plans that could lead SEOs to take unnecessary and 
excessive risks that could threaten the value of [identify TARP 
recipient] and has identified any features of the employee 
compensation plans that pose risks to [identify TARP recipient] and 
has limited those features to ensure that [identify TARP recipient] 
is not unnecessarily exposed to risks;
    (iii) The compensation committee has reviewed, at least every 
six months during any part of the most recently completed fiscal 
year that was a TARP period, the terms of each employee compensation 
plan and identified any features of the plan that could encourage 
the manipulation of reported earnings of [identify TARP recipient] 
to enhance the compensation of an employee, and has limited any such 
features;
* * * * *
    (ix) [Identify TARP recipient] and its employees have complied 
with the excessive or luxury expenditures policy, as defined in the 
regulations and guidance established under section 111 of EESA, 
during any part of the most recently completed fiscal year that was 
a TARP period; and any expenses that, pursuant to the policy, 
required approval of the board of directors, a committee of the 
board of directors, an SEO, or an executive officer with a similar 
level of responsibility were properly approved;
* * * * *
    (xi) [Identify TARP recipient] will disclose the amount, nature, 
and justification for the offering, during any part of the most 
recently completed fiscal year that was a TARP period, of any 
perquisites, as defined in the regulations and guidance established 
under section 111 of EESA, whose total value exceeds $25,000 for any 
employee who is subject to the bonus payment limitations identified 
in paragraph (viii);
* * * * *
    (xv) [Identify TARP recipient] has submitted to Treasury a 
complete and accurate list of the SEOs and the twenty next most 
highly compensated employees for the current fiscal year, with the 
non-SEOs ranked in descending order of level of annual compensation, 
and with the name, title, and employer of each SEO and most highly 
compensated employee identified; and''.
* * * * *

    Dated: November 30, 2009.
Herbert M. Allison, Jr.,
Assistant Secretary for Financial Stability.
[FR Doc. E9-29027 Filed 12-4-09; 8:45 am]
BILLING CODE 4810-25-P