Thursday, October 2, 2008

HR EYE ON THE ELECTION - Senate Bailout Bill (HR 1424) Caps Executive Compensation

Senate Package Addresses Exorbitant Golden Parachutes

The Senate bailout bill passed last night contains provisions for a variety of items including:

  • Increasing FDIC coverage of individual accounts to $250,000

  • An extension of the alternative minimum tax

  • Caps on Executive Compensation

Provisions covering the caps would limit tax deductions for executive compensation and bonuses at $500,000 for a company's top three officials to ensure that "bad actors" are not rewarded.

Companies that are completely taken over would not be able to give their executives large golden parachutes like those seen in the wake of the U.S. government takeovers of AIG, Fannie Mae, and Freddie Mac.

General terms of the cap provisions are:

  • If Treasury Department takes equity position of at least $300 million, senior exec's would be barred from receiving severance pay.

  • Executive receiving severance face a 20 percent excise tax on payments above $500,000

  • Tax would be payable if leaving for any reason other than normal retirement

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