Healthy banks that agreed to take money from the Troubled Asset Relief Program are beginning to rue their decision. Last fall, as a way to boost lending and stimulate the financial system, the government strongly encouraged several hundred of the country's healthiest banks to tap TARP funds alongside the bigger more precarious national banks deemed too big to fail. Now, these mid-tier bankers complain, the government is tarring them with the same broad brush as the failing institutions and forcing them to accept punitive executive compensation rules.
In February, when President Obama signed the stimulus bill, provisions retroactively changed the rules on compensation for executives at banks that accepted TARP money. The bill limits bonus payments to no more than one-third of annual total compensation, and that bonuses must be in the form of restricted stock that can only vest once the government is repaid. While these restrictions only apply to the top 25 highest-paid people at large institutions, the law doesn't define those 25 people. What's more, the law requires a "say-on-pay" shareholder vote on executive comp.