As part of the recently passed Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act), the Treasury Department will provide loans, loan guarantees, and other investments for U.S. businesses, states, and municipalities dealing with losses incurred as a result of COVID-19.  Among other requirements, businesses that enter into these loan agreements are subject to certain limits on executive compensation during the period beginning on the date the loan agreement is entered into and ending one year after the loan or loan guarantee is no longer outstanding (the “Restriction Period”).  Note that these limits are not applicable to businesses that participate in the small business relief that was also provided under the CARES Act.[1]  More information on the small business relief under the CARES Act can be found here. The rules described below apply to certain specialized industries (passenger air carriers, cargo air carriers, and businesses critical to maintaining national security) as well as other mid-sized businesses in any industry with between 500 and 10,000 employees. The restrictions on executive compensation are as follows:

  • No officer or employee of the business whose total compensation exceeded $425,000 in 2019 (other than an employee whose compensation is determined through an existing collective bargaining agreement entered into prior to March 1, 2020) may receive from the business:
    • Total compensation which exceeds, during any 12 consecutive months of the Restriction Period, the total compensation received by the officer or employee from the business in 2019; or