When the House passed its bill to tax executive retention bonuses at firms receiving TARP bailout funds, they added an odd codicil to the legislation that puzzled some observers. The legislation only applied the taxes to firms that received a minimum of $5 billion in cash infusions from Treasury, causing some people to wonder why that particular number got chosen. As it turns out, a neglected part of the Chrysler bailout loan agreement may be the answer.
On page 265, near the end of the lengthy document, the agreement stipulates:
7.17. Executive Privileges and Compensation.
The references to the Borrower in Section 7.17 of the Loan Agreement shall be deemed to be references to Chrysler LLC.
(a) Notwithstanding anything herein to the contrary, Section 7.17(a) of the Loan Agreement shall be modified to add the following at the end of subsection (v): “; provided, however, that a Relevant Company or any of its Subsidiaries may pay retention payments due in August 2009 earned on a pro rata basis through the date of this Agreement.”
How much did Chrsyler get in cash? $4 billion. Under these terms of the bill and the loan agreement, Chrysler can pay out its bonuses without incuring any extra tax penalty. It’s a very convenient coincidence, isn’t it?
Chrysler has already begun to put distance between itself and the residual AIG outrage:
Chrysler’s top 25 executives signed a waiver forgoing any severance or bonus as a condition of its $4-billion loan from the U.S. Treasury, CEO Bob Nardelli said Tuesday. But the company still will pay substantial retention bonuses later this year under a plan crafted by DaimlerChrysler in 2007.
In an interview with CNBC, Nardelli said, “I think the entire organization is acting in a very responsible way to make sure we are protecting the integrity and the governance of the taxpayers’ funds.”
Nardelli was eager to distance Chrysler from AIG, which recently paid more than $160 million in bonuses.
USA Today reported on this last November, when Chrysler was begging for the funds:
As Detroit’s crumbling auto industry asks Congress for a bailout, Chrysler is in the awkward position of paying about $30 million in retention bonuses to keep top executives while the company cuts thousands of jobs.
Chrysler owes the bonuses under its contracts with about 50 executives, based on a retention incentive plan crafted early last year by former German parent DaimlerChrysler, when it was preparing to sell the Chrysler unit.
Nancy Rae, Chrysler executive vice president for human resources and communications, said the move made sense at the time to ensure potential buyers that key Chrysler executives would remain in place after a sale. She acknowledged that the bonuses could be seen as controversial now.
“We all would be smarter if we knew what we know now back in February of ’07,” she said. “Probably a lot of different decisions would be made.”
Chrysler wants more bailout funds, so this may well be a moot point. But right now, looking at the terms of the Bill of Attainder passed by the House and the terms of the bailout with Chrysler, we can answer the cui bono question that eluded us last week on the $5 billion floor. (via HA reader Morgen)
Update: Jim Treacher e-mails: “Obama Knew, Bonuses Flew.” Let the bumper stickers appear!