Buzzword of the Week: TARP Bonus

Remember the Troubled Asset Relief Program that grew up in the financial crisis of 2008? That’s the origin of this week’s buzzword from Investopedia, TARP Bonus.

Outsourced CFO northern virginiaThis buzzword was coined by the financial media during the financial crisis to describe bonuses paid to employees and executives of banks and other financial firms that received Troubled Asset Relief Program (TARP) funds. TARP bonuses were controversial because employees were receiving additional pay even as their companies required bailout funds.

Companies argued that they have to pay bonuses to retain talent. But critics contended that because the companies led by the executives in question were being rescued with taxpayer money, the bonuses were not well-deserved and the recipients should not be considered “talent”.

On March 19, 2009, the House approved a bill to create legislation that would put a 90% tax on bonuses earned during the 2008 year. This tax would apply to banks receiving TARP bailout funds of more than $5 billion. This legislation was created in response to the public anger surrounding $165 million in bonuses that was paid to traders in the AIG Financial Products (AIGFP) division, the division responsible for the majority of losses surrounding the fall of AIG.

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