Did Treasury overstep it’s (very significant) bounds?

Posted by Marc Hodak on October 15, 2008 under Executive compensation | Be the First to Comment

As everyone knows, the U.S. Treasury has chosen to distribute it’s first $125 billion in bailout funds to the nine banks that didn’t need it–or necessarily want it. So, I’m reading all over that this forced investment comes with a $500,000 limit on CEO pay deductibility. Why is everyone saying this? Because Treasury itself said so in their announcement of the plan.

But when we look at the term sheet upon which this announcement is based, it claims the authority for requiring the compensation restrictions as Sec. 111 of the EESA. Thing is, Sec. 111, which applies when Treasury makes an investment in the firm, doesn’t include the $500,000 tax limit. That’s in Sec. 302, which kicks in only when institutions sell troubled assets to the treasury. So, what gives?

Maybe I’m looking at a wrong version of the quickly evolved EESA? Or maybe I haven’t yet learned to stop questioning Herr Paulson’s authority. He was, after all, able to wring $700 billion out of a reluctant Congress, then turn a voluntary program into a “voluntary” program.