October 9th, 2009

TARP Companies Outwitting Pay Regulation?

Pay regulation has been a contentious issue for some time now. Causing a lot of heartburn, it has dissidents calling it a move towards strong socialistic ideals. Different pay regulations address different components of a pay structure.


In the U.S. there is more than one governing body that is focused on regulation of pay. This year alone, there have been multiple, restrictive rules governing pay at Troubled Asset Relief Program (TARP) recipient companies (see table below).


TARP Regulatory Bodies Click to enlarge


Obviously such regulation is bound to take its toll on morale. When non TARP borrowers hand out generous bonuses and salaries it is bound to make executives at TARP companies restless.


Besides pay regulation, these TARP recipients have had to contend with a flight of senior management executives. The past one month alone has seen at least 11 instances of senior management exits at TARP companies.




*First Bancorp’s Audit Committee investigated into certain personal transactions that Mr. Beauchamp failed to report to the Corporation in accordance with the Corporation’s policies and procedures. ** Douglas Hart joined Webster in 2007.


Those who are familiar with InvesGuard’s scoring model will know that every company in our database is scored based on such exits.


Even ex TARP borrower companies such as Morgan Stanley have been faced with executive level changes. The company recently announced a change at the topmost level with Co-President James P. Gorman succeeding current CEO John Mack from January 1, 2010.


But there are some companies and employees who appear to fight back at such regulation.


Take the example of Mr. Ross Kari. He was employed with Fifth Third Bancorp (FITB) in November 2008. FITB which is a TARP recipient to the tune of around $3.4 billion, appointed Mr. Ross Kari with a sign on bonus of $100,000 and a salary of $580,000. Unfortunately, for reasons best known to Mr. Rossi, this offer lost its luster and within a year, he accepted the CFO position at Freddie Mac (FRE) on September 22, 2009.


Of course, such a position even with a company as deep in government debt as Freddie has come with a significantly higher compensation package than what Mr. Rossi had been making at Fifth Third Bancorp.


The package includes:


  • A base salary of no less than $675,000

  • A target annual total direct compensation opportunity of $3,500,000, which will consist of the base salary of $675,000, an additional annual salary of $1,658,333 paid over time in installments and an annual target incentive opportunity of $1,166,667. The actual dollar amount of the incentive opportunity Kari will receive will be determined in the discretion of Freddie Mac, subject to approval by FHFA

  • A cash sign-on award of $1,950,000 in recognition of the forfeited annual incentive opportunity and unvested equity at his current employer. This award will be paid in installments during Kari’s first year of employment with Freddie Mac. If Kari is not an employee of Freddie Mac on an installment payment date, the installment will be forfeited. A portion of each installment will be subject to repayment in the event that, prior to the first anniversary of an installment payment date, Kari terminates his employment with Freddie Mac for any reason or Freddie Mac terminates his employment for cause (as is defined in the Memorandum Agreement)


    Pretty generous? Sure, but will someone tell me how this fits in with the myriad government pay regulations? Does it fit in at all?


    Take another instance of SVB Financial Group (TARP borrowings of $235,000,000) which increased base salaries of its executives.


  • Mr. Ken Wilcox, President and Chief Executive Officer of the Company, from $710,000 to $1,000,000;

  • Mr. Greg Becker, President of Silicon Valley Bank, from $425,000 to $700,000;

  • Mr. Michael Descheneaux, Chief Financial Officer of the Company, from $425,000 to $485,000; and

  • Mr. Dave Webb, Chief Operations Officer of the Company, from $375,000 to $405,000.


    Increasing base salaries to circumvent pay regulation? Not very innovative….


    If you have come across any more of such ‘sidesteps’, we would love to hear from you.


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