Executives at two bailed-out lenders could earn the kind of big paychecks that are normally a no-no for banks that still owe the federal government.

The chief executives of Marshall & Ilsley Corp. and Whitney Holding Corp. — which together owe $2 billion in federal aid — may get around pay restrictions thanks to a loophole in the Troubled Asset Relief Program's rules by selling their companies to banks that are not in Tarp.

M&I's CEO, Mark Furlong, who is slated for a high-ranking job at buyer Bank of Montreal, would receive $18 million in cash and potentially a $6 million retention bonus one year after the deal closes, according to regulatory filings.

John Hope, the CEO of Whitney, could collect a payment equal to three times his base salary among other compensation, because Hancock Holding Corp. has agreed to honor change-in-control provisions in his and other top executives' employee agreements. That decision could "result in significant expenses" by triggering severance payments if they resign or lose their jobs after the deal closes, according to a joint proxy statement.

Hope also would be entitled to exercise $1.5 million of restricted stock in connection with the deal, and may also be able to get early access to $618,000 of deferred compensation.

Bankers are supposed to get nothing that resembles a golden parachute — or a big lump sum of departure money — from any active participant in Tarp. But the program's rules also say that pay restrictions can be lifted at Tarp-holding banks if they're bought by companies that are not in the program. It's not a requirement that the buyer repay the sellers' Tarp debt, though Bank of Montreal and Hancock plan to do so as part of their deals.

The potential payouts at M&I, of Milwaukee, and Whitney — both sought-after acquisition targets whose executives had leverage to strike favorable deals — illustrate how merger-related compensation could make a comeback as bank deals pick up, even at Tarp banks, experts said. It's a matter of debate whether M&I and Whitney, of New Orleans, are exceptions or harbingers of what CEOs of sellers can expect.

Five other Tarp banks have sold themselves to Tarp-free buyers, but executives at the selling companies did not take advantage of the provision.

Chalk that up to the everything-is-negotiable nature of deals: Executives at those five others were not exactly in a position to play hardball on compensation matters. South Financial Group Inc., for one, was on the brink of failure last year before selling to Bank of Montreal, which got South Financial to waive any legacy control-change payments in new job contracts.

Compensation is hot-button topic right now, and bankers are acutely aware of how big paychecks can strike a nerve with investors, shareholders and the public. That's one reason they've been especially rare in other deals involving bailed-out banks, such as Cadence Financial Corp. of Starkville, Miss.

"There will be no golden parachute payments with this transaction," said Jon Boydstun, director of marketing for Cadence, which is resolving its $44 million Tarp debt through a sale to a Houston investor group called Community Bancorp LLC. Though the deal is a change in control, the company's CEO and other executives aren't getting any payments under agreements to remain Cadence employees after the deal closes.

For example, Cadence's CEO, Lewis F. Mallory, waived his right to receive a nearly $900,000 change-in-control payout, said Jon McWhorter, Community Bancorp's chief financial officer.

In another Tarp-related transaction, bankers tried and failed to line up parachutes. Capital Bank Corp., a Charlotte, N.C., community bank, initially had a $3.35 million agreement for CEO Grant Yarber as part of its sale to a Miami investor group called North American Financial Holdings Inc. But they renegotiated the acquisition to eliminate that payment after plans fell through to resolve Capital Bank's Tarp debt.

In January, Yarber told the Triangle Business Journal in North Carolina that he'd gotten "hate mail" after details of the agreement emerged. His office did not return a call for comment.

Parachutes are "certainly not beyond the bounds of tradition," said Thomas Watkins, founding partner of the executive search firm Chartwell Partners in Dallas. "Traditionally, the CEO is cared for with — not extraordinary compensation — but compensation that is within the bounds of normal business practice."

Bank of Montreal's agreement with Furlong may be perfectly legal and arguably well deserved, Watkins said, noting that Furlong kept the bank from collapsing under bad construction loans and helped put together a deal that's going to reward M&I investors a 34% market premium for their shares. The problem, though, is that the "normal business practice of CEOs in the last couple of years has undergone significant change," Watkins said. "I think that will be challenged by shareholders, because that is, in these times, I think we will find out that is relatively rich. That would be my thought on that."

There are at least 10 shareholder lawsuits challenging the deal between M&I and Bank of Montreal. One of them, a class action coordinated by Brower Piven of New York, alleges that "the acquisition was negotiated and designed to benefit Marshall & Ilsley's leadership team," according to a Brower Piven press release.

Paul Deegan, a spokesman for Bank of Montreal, said it is honoring an agreement between M&I and Furlong from 2008 that is being "triggered" by the deal and Tarp repayment. That $18 million is what M&I agreed to pay him in a change-of-control, Deegan said; it is not subject to change.

"He's entitled to the payment," Deegan said.

Deegan said that "Mr. Furlong's future employment at BMO is important to ensuring a smooth integration" that will benefit the company and its investors.

Officials at Brower Piven and M&I did not return calls for comment. Nor did those from Hancock, which is based in Gulfport, Miss., or Whitney. 

Payouts are subject to change even when Tarp is not an issue.

NewAlliance Bancshares Inc., for instance, did away with early retirement compensation due CEO Peyton Patterson in the New Haven, Conn., company's pending sale to First Niagara Financial Group Inc. of Buffalo, N.Y. That shrank the size of the total severance and got NewAlliance out of covering $4 million in taxes on her payment, an exposure that had angered shareholders.

The future of merger and acquisition parachutes as a general matter is uncertain, experts say, especially with new Securities and Exchange Commission rules that give shareholders the right to vote on some severance in M&A deals. But that rule, which takes effect in April, wouldn't give shareholders in M&I the right to void Furlong's agreement because it's being covered by the buyer.

"Bank compensation is arguably the most heavily regulated in the country," said Eric W. Hilfers, partner in charge of compensation for Cravath Swaine & Moore LLP. "You've got much more public interest, public pressure, congressional interest" than in other industries.

Though most banks are healthy enough to have repaid their aid, there are some Tarp-holders that analysts and investors have pegged as potential takeover targets. Among them: Regions Financial Corp., M&T Bank Corp. and KeyCorp. Others include smaller operations like MB Financial Inc. and First Midwest Bancorp Inc. Of the 707 banks that participated in the Tarp's Capital Purchase Program, 578 had not returned their aid at the end of 2010, mostly small community banks.

Is it possible that some of them could strike deals that line up parachutes for executives that have spent years going without cash bonuses and other Treasury pay restrictions? 

Henry Oehman, director of national compensation at Grant Thornton LLP, said parachutes have a tendency to be an effect — not a cause — of a merger. He said they tend to emerge in side deals between top executives at the seller and the buyer, as is the case with Furlong. Bank of Montreal agreed to the lump-sum payment to cover what he was entitled to in his M&I contract as part of his agreement to become the CEO of its U.S. commercial and personal bank. Getting the best job offer possible "is human nature and its good business," Oehman said.

It unlikely that a CEO of a Tarp bank would be motivated to sell a company just to get back their severance, Oehman said. For one thing, boards and shareholders decide whether to sell a company, he said, even the CEO is the point person in the deal. The Treasury Department has said it will crack down on any deal done specifically to subvert pay restrictions.

"Do I sell my bank to another bank so I'm no longer subject to these restrictions? First of all, when you sell yourself to another bank, there is a good chance you may not be around after the deal," Oehman said. "You have sold yourself with no [guarantee of] severance."

That is typically what's happened so far at Tarp banks that have done deals.  

The buyer of Naples, Fla.-based TIB Financial Corp., North American Financial, nixed more than $5 million in potential payouts to its five-person executive team that could have otherwise become applicable when the merger closed on Sept. 30, according to SEC filings. It had each one of them sign offer letters that "superseded" and waived any severance agreements in their old job contracts. 

First Federal Bancshares of Arkansas Inc.'s sale agreement in January to Bear State Financial Holdings Inc. used the new job-offer method for voiding severances, too.