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The Treasury Department's Guidelines on Executive Pay

By Angela Marie Hubbell
February 19, 2009

President Obama and Treasury Secretary Timothy F. Geithner stood together on Feb. 4, 2009, to announce the Treasury Department's new set of guidelines restricting executive compensation at financial institutions that receive governmental money. In his announcement, President Obama called the bonus payments made to senior executives in late 2008 by major financial firms that received bailout money “shameful and intolerable.” He indicated that the new Treasury guidelines were issued to ensure public funds are directed toward the public's interest in stabilizing our economy and are designed to align compensation of senior executives in the financial industry with interests of both shareholders and taxpayers.

Specifically, the guidelines indicate that they were designed to strike a balance between the financial industry's need to attract top talent to lead in the current economic climate and the public's interest in requiring transparency and accountability. The guidelines require not only disclosure of but an explanation and justification of the policy supporting certain compensation decisions. The guidelines are divided into two broad categories: 1) compliance and certification; and 2) limits on executive compensation.

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