House Passes Grayson-Himes Legislation to Tie Pay to Performance for TARP Recipients
The U.S. House of Representatives today approved legislation that would tie pay to performance at companies that have received direct capital investments under the Troubled Asset Relief Program. The Grayson-Himes Pay for Performance Act would prohibit certain compensation at these institutions to better align the public’s interest with the health of the financial institutions.
In addition, the bill also repeals a controversial provision in the American Recovery and Reinvestment Act that exempts bonuses due under employment contracts entered into or before February 11, 2009. The bill passed by a vote of 247-171.
“This bill was passed for the sake of our financial survival. Taxpayers should not bankroll executives whose ridiculous gambles brought America’s financial system to the brink of collapse,” said Congressman Alan Grayson (D-FL). “The power the bill grants is pretty standard. The taxpayers now have an ownership stake in these companies. And owners of companies set salaries for their employees. Any company bent on paying its employees unreasonable and excessive compensation can do so after the American taxpayers get their money back.”
“The Pay for Performance Act is based on a principle we can all agree on—if you perform well, you should be paid accordingly,” said Congressman Jim Himes (D-CT). “In companies where the taxpayers are now shareholders, we have the right to ensure that people within those institutions are making prudent decisions that will help stabilize and grow their long-term value.”
“Given the legislative process and the Administration’s desire to get this bill done before the recess to speed funds into the economy, Congress made a mistake. We have, fortunately, a process for correcting mistakes which is subsequent legislation. We have now acted very promptly and if this bill becomes law then the mistake will have had no effect,” said Chairman Frank.
Regardless of when a company entered into a compensation payment arrangement, recipients who have yet to repay a direct capital investment under TARP or the Housing and Economic Recovery Act (which covers Fannie Mae, Freddie Mac and the Federal Home Loan Banks) now would be prohibited from:
The House also approved two amendments introduced by Dennis Cardoza (D-CA) and Melissa Bean (D-IL). The Cardoza amendment would allow the Treasury Secretary to exempt “community financial institutions,” institutions that receive or have received a direct capital investment under TARP of no more than $250 million. The Bean amendment would enable institutions that enter into a TARP payback schedule with Treasury on terms set by Treasury to no longer be subject to the bonus and compensation restrictions created by the Act. If an institution defaults it would be required to surrender to Treasury any compensation that would have been subject to the bill.
The bill would require the Treasury Secretary to consult with the Chairperson of the Congressional Oversight Panel and obtain approval of the agencies that are members of the Federal Financial Institutions Examination Council before defining unreasonable or excessive compensation and establishing performance-based measures.
Finally, the bill would require a financial institution that is subject to the new compensation requirements to submit an annual report to the Treasury Secretary stating how many executives and employees received or will receive total compensation above specified dollar amounts during the fiscal year.