On Feb. 17, 2009, President Barack Obama signed into law the American Recovery and Reinvestment Act of 2009 (ARRA). Title VII, Section 7001 of ARRA amends Section 111 of the Emergency Economic Stabilization Act of 2008 (EESA) as enacted Oct. 3, 2008. Section 111 contains restrictions on executive compensation applicable to institutions receiving financial assistance under the Troubled Assets Relief Program (TARP).[1] For purposes of this column, Section 111 as amended by ARRA is referred to as “New Section 111,” and Section 111 as originally enacted under EESA is referred to as “Original Section 111.”

New Section 111 continues certain provisions of Original Section 111 but expands the number of executives covered (with different numbers of executives covered under different provisions), imposes stricter limitations on compensation payments, prohibits severance payments to certain executives and adds new corporate governance standards and requirements relating to those standards.

Generally speaking, the limitations and standards under New Section 111 apply during the period in which any obligation arising from financial assistance provided under the TARP remains outstanding (referred to herein as the “TARP Period”). Under New Section 111 the TARP Period ends even if the government still holds warrants. The statute applies to a “TARP Recipient,” defined as “any entity that has received or will receive financial assistance under the financial assistance provided under the TARP.”

Further complicating matters are additional compensation guidelines announced by the U.S. Treasury on Feb. 4, 2009, in a press release (“Treasury Announces New Restrictions on Executive Compensation,” Press Release No. TG-15, referred to hereinafter as “TG-15”).[2] TG-15 applies one set of guidelines to companies receiving “exceptional assistance” and another (albeit with some overlapping of guidelines) for companies receiving assistance under “generally available capital access programs.”[3]

Following is a review of selected provisions of New Section 111 including, as applicable, a comparison of it to Original Section 111 and TG-15. (As of the time this column was written, regulations had not yet been issued under New Section 111.)

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