This is how Treasury will be capping executive compensation for banks participating in TARP

via John Carney. For mortgage asset sellers:

As prescribed by the Act, any financial institution that sells more than $300 million of troubled assets to the Treasury via an auction would be prohibited from entering into new executive employment contracts that include golden parachutes for the term of the program. Treasury is releasing Treasury Notice 2008-TAAP regarding this restriction. Furthermore, under the Act,

(1) the financial institution may not deduct for tax purposes executive compensation in excess of $500,000 for each senior executive,

(2) the financial institution may not deduct certain golden parachute payments to its senior executives and

(3) a 20-percent excise tax will be imposed on the senior executive for these golden parachute payments.

For equity capital participants:

The financial institution must meet certain standards, including:

(1) ensuring that incentive compensation for senior executives does not encourage unnecessary and excessive risks that threaten the value of the financial institution;

(2) required clawback of any bonus or incentive compensation paid to a senior executive based on statements of earnings, gains, or other criteria that are later proven to be materially inaccurate;

(3) prohibition on the financial institution from making any golden parachute payment to a senior executive based on the Internal Revenue Code provision; and

(4) agreement not to deduct for tax purposes executive compensation in excess of $500,000 for each senior executive.