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Originally published Tuesday, June 15, 2010 at 5:20 PM

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Most bank CEOs who took TARP money got pay cuts

Banks that got TARP bailout funds faced restrictions in executive compensation

Seattle Times business reporter

The federal government had a say in the pay of CEOs at 10 publicly traded Northwest companies last year.

Those companies run banks that received millions in federal TARP (Troubled Asset Relief Program) money in late 2008 and early 2009 — sometimes because they were in trouble, sometimes because the Treasury Department wanted to set them up to absorb weaker banks.

The TARP dollars came with strings: limits on executive compensation, imposed partly in response to public outrage at huge executive bonuses awarded at some big Wall Street firms the federal government had bailed out.

Many of the restrictions were adopted only after the banks had taken the money.

Five of the 10 publicly traded Northwest TARP recipients paid their CEOs less last year than in 2008, according to data compiled for The Seattle Times by executive-compensation firm Equilar.

Two CEOs got more. The other three were new to their jobs in 2009.

In general, banks that got TARP money were "much more sensitive to public criticism and public perceptions [about executive pay] than other companies," said Aaron Boyd, Equilar's head of research.

Raymond Davis, of Portland-based Umpqua Holdings, parent of Umpqua Bank, was paid more than any other Northwest TARP CEO last year but also took the biggest pay cut: 42 percent. The TARP compensation restrictions were a factor, said Steven Philpott, the company's executive vice president and general counsel.

Davis got a $298,000 bonus in 2008, nothing in 2009 — the TARP rules bar bonuses. He probably would have received something last year if Umpqua hadn't been hamstrung by the federal restrictions, Philpott said.

The parent companies of Everett's Cascade Bank and Hoquiam's Timberland Bank also paid their CEOs bonuses in 2008 but couldn't last year because of TARP.

The government's rules ban stock-option awards, limiting long-term incentive pay to restricted stock that vests in full only after the bank pays the government back. Those awards can't amount to more than one-third of an executive's total pay.

Davis received restricted stock units in 2009 that Umpqua valued at $320,400. He probably would have been awarded more but for the government restrictions, Philpott said. "There's no question TARP caused compensation committees to alter their programs."

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Davis did receive 50,000 stock options last year, but they were granted before the ban took effect.

The TARP rules took money out of Umpqua's pocket as well as Davis'.

Government rules for most companies limit to $1 million the amount of executive compensation they can deduct as a business expense for tax purposes. That doesn't include incentive pay.

For TARP recipients, however, that cap was slashed to $500,000 — including incentive pay. That meant Umpqua paid more taxes last year.

This February Umpqua paid back the $214 million it got from TARP. Getting out from under the executive-compensation limits was one reason, Philpott said.

Seattle-based Washington Federal received $200 million from TARP in November 2008, but the bank paid the government back in May 2009 and wasn't governed by the TARP pay limits for most of its fiscal year.

That left the bank free to pay CEO Roy Whitehead a $100,000 bonus as part of a package that was 14 percent more in 2009 than 2008.

Eric Pryne: 206-464-2231 or epryne@seattletimes.com

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