O·,· 7'-··r· ~.~ , : .. "'·~
. ·"'",,, . , NEWS RELEASE
flOIIAL OE,0511 IHSUUNCE co1,ou110H
FOR JM1EDIATE REI.FASE Media Contact:
PR-141-91 (9-24-91) Jay Rosenstein (202) 898-7303
FDIC PROFOSES LIMITS ON GOIDEN PARACHUI'ES, OTHER PAYMENI'S 'IO lliSIDERS
'Ihe FDIC Board of Directors issued for public carrarent tcxiay a proposal
interrle1 to prevent insured banks a:rrl savin;s asscx::::iations fran enter.in; into
excessive or inappropriate cc::mpensation arrangenents with e:rrployees a:rrl
directors, amen; them certain "golden parachute" payments.
'Ihe FDIC proposal is aimed at stoppin; abuses in two basic areas. One
is when a trouble1 institution makes a large cash payment to an executive
officer when that in:lividual resigns - often referred to as a golden
parachute. 'Ihe other is when an institution either reimburses or pays "up
front" for liabilities or 18:Jal expenses an officer, director or enployee
incurs in connection with an administrative or civil enforcement action.
'Ihe agency has encountered past abuses with golden parachutes when
institutions pay substantial sums to top executives who decide to resign just
after being given notice by a regulator that the institution is trouble1 or
must be sold or closed. Not only do these payments "reward" in:lividuals who
contribute1 to the demise of the institution, but they increase the cost of
the failure to the insurance fun:is.
As for indenmification payments, the FDIC believes that in:lividuals who
violate banking laws should pay penalties a:rrl 18:Jal expenses out of their c,..;n
pockets and not be reinibursed by insured institutions. 'Ibis helps deter fraud
and protect the insurance fun:is.
Anti-fraud legislation enacted by Con::JresS last year authorized the
FDIC to prohibit or limit "any golden parachute payment or indemnification
payment." However, FDIC officials believe that some golden parachutes a:rrl
-:rrore-
FEOERAL DEPOSIT INSURANCE CORPORATION, 550 Seventeenth SL, N.W., Washington, D.C. 20429 • 202-898-6996
. ·"'",,, . , NEWS RELEASE
flOIIAL OE,0511 IHSUUNCE co1,ou110H
FOR JM1EDIATE REI.FASE Media Contact:
PR-141-91 (9-24-91) Jay Rosenstein (202) 898-7303
FDIC PROFOSES LIMITS ON GOIDEN PARACHUI'ES, OTHER PAYMENI'S 'IO lliSIDERS
'Ihe FDIC Board of Directors issued for public carrarent tcxiay a proposal
interrle1 to prevent insured banks a:rrl savin;s asscx::::iations fran enter.in; into
excessive or inappropriate cc::mpensation arrangenents with e:rrployees a:rrl
directors, amen; them certain "golden parachute" payments.
'Ihe FDIC proposal is aimed at stoppin; abuses in two basic areas. One
is when a trouble1 institution makes a large cash payment to an executive
officer when that in:lividual resigns - often referred to as a golden
parachute. 'Ihe other is when an institution either reimburses or pays "up
front" for liabilities or 18:Jal expenses an officer, director or enployee
incurs in connection with an administrative or civil enforcement action.
'Ihe agency has encountered past abuses with golden parachutes when
institutions pay substantial sums to top executives who decide to resign just
after being given notice by a regulator that the institution is trouble1 or
must be sold or closed. Not only do these payments "reward" in:lividuals who
contribute1 to the demise of the institution, but they increase the cost of
the failure to the insurance fun:is.
As for indenmification payments, the FDIC believes that in:lividuals who
violate banking laws should pay penalties a:rrl 18:Jal expenses out of their c,..;n
pockets and not be reinibursed by insured institutions. 'Ibis helps deter fraud
and protect the insurance fun:is.
Anti-fraud legislation enacted by Con::JresS last year authorized the
FDIC to prohibit or limit "any golden parachute payment or indemnification
payment." However, FDIC officials believe that some golden parachutes a:rrl
-:rrore-
FEOERAL DEPOSIT INSURANCE CORPORATION, 550 Seventeenth SL, N.W., Washington, D.C. 20429 • 202-898-6996
-2-
irrlemnification agreements may represent legitimate business practices. 1-s a
result, the proposal issued for cx:mment today is inten:ied to provide
reasonable exceptions to an outright prohibition.
'lhe FDIC proposal generally would prohibit golden p:rrachute
a.rra.rgements by an institution that is insolvent, in conse:r.vatorship or
receivership, rated 11 411 or 11511 on the interagency five-point rating scale for
financial sourrlness, or that is subject to a proceeding to tenn.inate deposit
insurance. Exceptions would be permitted if a golden parachute were use::i to:
o Attract a new manager to i.nprove the institution's corrlition, .
provided the institution obtains the written consent of its
primary federal regulator and the FDIC.
o Provide financial assistance to staff losing their jobs in a
cost-cutting move. 'lhe proposal would limit the maximum
severance benefit an1 require 30 days' prior notice to the
primary regulator an1 the FDIC before paying a senior executive.
o SUpplement traditional retirement benefits for senior executive
officers through certain deferred cx::mpensation plans.
'lhe proposal also would ban any insured institution from naking
indemnification payments to an errployee prior to a final order clearing the
irrlividual of any charges, unless the institution's board satisfies six
criteria irrlicating that the payrt¥=nt or reimbursement is reasonable.
Conunents will be accepted for 60 days after the proposal appears in the
Federal Register. 'lhe FDIC is particularly interested in comments on ¥filether
the plan would appropriately balance the needs of the insurance funds with the
needs of institutions to attract an1 retain qualified directors and managers.
(
# # #
irrlemnification agreements may represent legitimate business practices. 1-s a
result, the proposal issued for cx:mment today is inten:ied to provide
reasonable exceptions to an outright prohibition.
'lhe FDIC proposal generally would prohibit golden p:rrachute
a.rra.rgements by an institution that is insolvent, in conse:r.vatorship or
receivership, rated 11 411 or 11511 on the interagency five-point rating scale for
financial sourrlness, or that is subject to a proceeding to tenn.inate deposit
insurance. Exceptions would be permitted if a golden parachute were use::i to:
o Attract a new manager to i.nprove the institution's corrlition, .
provided the institution obtains the written consent of its
primary federal regulator and the FDIC.
o Provide financial assistance to staff losing their jobs in a
cost-cutting move. 'lhe proposal would limit the maximum
severance benefit an1 require 30 days' prior notice to the
primary regulator an1 the FDIC before paying a senior executive.
o SUpplement traditional retirement benefits for senior executive
officers through certain deferred cx::mpensation plans.
'lhe proposal also would ban any insured institution from naking
indemnification payments to an errployee prior to a final order clearing the
irrlividual of any charges, unless the institution's board satisfies six
criteria irrlicating that the payrt¥=nt or reimbursement is reasonable.
Conunents will be accepted for 60 days after the proposal appears in the
Federal Register. 'lhe FDIC is particularly interested in comments on ¥filether
the plan would appropriately balance the needs of the insurance funds with the
needs of institutions to attract an1 retain qualified directors and managers.
(
# # #