H.R. 3269 -Corporate and Financial Institution Compensation Fairness Act of 2009 - APPROVED BY CONGRESS 3 AUG 2009

Corporate and Financial Institution Compensation Fairness Act of
2009 (Referred to Senate Committee after being Received from House)

HR 3269 RFS

111th CONGRESS
1st Session

H. R. 3269

IN THE SENATE OF THE UNITED STATES

August 3, 2009

Received; read twice and referred to the Committee on Banking, Housing, and Urban Affairs

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AN ACT

To amend the Securities Exchange Act of 1934 to provide
shareholders with an advisory vote on executive compensation and to
prevent perverse incentives in the compensation practices of financial
institutions.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Corporate and Financial Institution Compensation Fairness Act of 2009'.

SEC. 2. SHAREHOLDER VOTE ON EXECUTIVE COMPENSATION DISCLOSURES.

Section 14 of the Securities Exchange Act of 1934 (15
U.S.C. 78n) is amended by adding at the end the following new
subsection:

`(i) Annual Shareholder Approval of Executive Compensation-

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  `(1) ANNUAL VOTE- Any proxy or consent or authorization
  (the solicitation of which is subject to the rules of the Commission
  pursuant to subsection (a)) for an annual meeting of the shareholders
  to elect directors (or a special meeting in lieu of such meeting) where
  proxies are solicited in respect of any security registered under
  section 12 occurring on or after the date that is 6 months after the
  date on which final rules are issued under paragraph (4), shall provide
  for a separate shareholder vote to approve the compensation of
  executives as disclosed pursuant to the Commission's compensation
  disclosure rules for named executive officers (which disclosure shall
  include the compensation committee report, the compensation discussion
  and analysis, the compensation tables, and any related materials, to
  the extent required by such rules). The shareholder vote shall not be
  binding on the issuer or the board of directors and shall not be
  construed as overruling a decision by such board, nor to create or
  imply any additional fiduciary duty by such board, nor shall such vote
  be construed to restrict or limit the ability of shareholders to make
  proposals for inclusion in such proxy materials related to executive
  compensation.
  
  
  

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  `(2) SHAREHOLDER APPROVAL OF GOLDEN PARACHUTE COMPENSATION-
  
  
  

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    `(A) DISCLOSURE- In any proxy or consent
    solicitation material (the solicitation of which is subject to the
    rules of the Commission pursuant to subsection (a)) for a meeting of
    the shareholders occurring on or after the date that is 6 months after
    the date on which final rules are issued under paragraph (4), at which
    shareholders are asked to approve an acquisition, merger,
    consolidation, or proposed sale or other disposition of all or
    substantially all the assets of an issuer, the person making such
    solicitation shall disclose in the proxy or consent solicitation
    material, in a clear and simple form in accordance with regulations to
    be promulgated by the Commission, any agreements or understandings that
    such person has with any named executive officers of such issuer (or of
    the acquiring issuer, if such issuer is not the acquiring issuer)
    concerning any type of compensation (whether present, deferred, or
    contingent) that is based on or otherwise relates to the acquisition,
    merger, consolidation, sale, or other disposition of all or
    substantially all of the assets of the issuer and the aggregate total
    of all such compensation that may (and the conditions upon which it
    may) be paid or become payable to or on behalf of such executive
    officer.
    
    
    
  
  
  
  

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    `(B) SHAREHOLDER APPROVAL- Any proxy or consent or
    authorization relating to the proxy or consent solicitation material
    containing the disclosure required by subparagraph (A) shall provide
    for a separate shareholder vote to approve such agreements or
    understandings and compensation as disclosed, unless such agreements or
    understandings have been subject to a shareholder vote under paragraph
    (1). A vote by the shareholders shall not be binding on the issuer or
    the board of directors of the issuer or the person making the
    solicitation and shall not be construed as overruling a decision by any
    such person or issuer, nor to create or imply any additional fiduciary
    duty by any such person or issuer.
    
    
    
  
  
  
  

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  `(3) DISCLOSURE OF VOTES- Every institutional
  investment manager subject to section 13(f) shall report at least
  annually how it voted on any shareholder vote pursuant to paragraphs
  (1) or (2) of this section, unless such vote is otherwise required to
  be reported publicly by rule or regulation of the Commission.
  
  
  

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  `(4) RULEMAKING- Not later than 6 months after the date
  of the enactment of the Corporate and Financial Institution
  Compensation Fairness Act of 2009, the Commission shall issue final
  rules to implement this subsection.
  
  
  

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  `(5) EXEMPTION AUTHORITY- The Commission may exempt
  certain categories of issuers from the requirements of this subsection,
  where appropriate in view of the purpose of this subsection. In
  determining appropriate exemptions, the Commission shall take into
  account, among other considerations, the potential impact on smaller
  reporting issuers.'.
  
  
  

SEC. 3. COMPENSATION COMMITTEE INDEPENDENCE.

(a) Standards Relating to Compensation Committees- The
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended by
inserting after section 10A the following new section:

`SEC. 10B. STANDARDS RELATING TO COMPENSATION COMMITTEES.

`(a) Commission Rules-

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  `(1) IN GENERAL- Effective not later than 9 months
  after the date of enactment of the Corporate and Financial Institution
  Compensation Fairness Act of 2009, the Commission shall, by rule,
  direct the national securities exchanges and national securities
  associations to prohibit the listing of any class of equity security of
  an issuer that is not in compliance with the requirements of any
  portion of subsections (b) through (f).
  
  
  

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  `(2) OPPORTUNITY TO CURE DEFECTS- The rules of the
  Commission under paragraph (1) shall provide for appropriate procedures
  for an issuer to have an opportunity to cure any defects that would be
  the basis for a prohibition under paragraph (1) before the imposition
  of such prohibition.
  
  
  

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  `(3) EXEMPTION AUTHORITY- The Commission may exempt
  certain categories of issuers from the requirements of subsections (b)
  through (f), where appropriate in view of the purpose of this section.
  In determining appropriate exemptions, the Commission shall take into
  account, among other considerations, the potential impact on smaller
  reporting issuers.
  
  
  

`(b) Independence of Compensation Committees-

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  `(1) IN GENERAL- Each member of the compensation committee of the board of directors of the issuer shall be independent.
  
  
  

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  `(2) CRITERIA- In order to be considered to be
  independent for purposes of this subsection, a member of a compensation
  committee of an issuer may not, other than in his or her capacity as a
  member of the compensation committee, the board of directors, or any
  other board committee accept any consulting, advisory, or other
  compensatory fee from the issuer.
  
  
  

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  `(3) EXEMPTION AUTHORITY- The Commission may exempt
  from the requirements of paragraph (2) a particular relationship with
  respect to compensation committee members, where appropriate in view of
  the purpose of this section.
  
  
  

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  `(4) DEFINITION- As used in this section, the term `compensation committee' means--
  
  
  

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    `(A) a committee (or equivalent body) established
    by and amongst the board of directors of an issuer for the purpose of
    determining and approving the compensation arrangements for the
    executive officers of the issuer; and
    
    
    
  
  
  
  

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    `(B) if no such committee exists with respect to an issuer, the independent members of the entire board of directors.
    
    
    
  
  
  
  

`(c) Independence Standards for Compensation Consultants
and Other Committee Advisors- Any compensation consultant or other
similar adviser to the compensation committee of any issuer shall meet
standards for independence established by the Commission by regulation.

`(d) Compensation Committee Authority Relating to Compensation Consultants-

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  `(1) IN GENERAL- The compensation committee of each
  issuer, in its capacity as a committee of the board of directors, shall
  have the authority, in its sole discretion, to retain and obtain the
  advice of a compensation consultant meeting the standards for
  independence promulgated pursuant to subsection (c), and the
  compensation committee shall be directly responsible for the
  appointment, compensation, and oversight of the work of such
  independent compensation consultant. This provision shall not be
  construed to require the compensation committee to implement or act
  consistently with the advice or recommendations of the compensation
  consultant, and shall not otherwise affect the compensation committee's
  ability or obligation to exercise its own judgment in fulfillment of
  its duties.
  
  
  

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  `(2) DISCLOSURE- In any proxy or consent solicitation
  material for an annual meeting of the shareholders (or a special
  meeting in lieu of the annual meeting) occurring on or after the date
  that is 1 year after the date of enactment of the Corporate and
  Financial Institution Compensation Fairness Act of 2009, each issuer
  shall disclose in the proxy or consent material, in accordance with
  regulations to be promulgated by the Commission whether the
  compensation committee of the issuer retained and obtained the advice
  of a compensation consultant meeting the standards for independence
  promulgated pursuant to subsection (c).
  
  
  

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  `(3) REGULATIONS- In promulgating regulations under
  this subsection or any other provision of law with respect to
  compensation consultants, the Commission shall ensure that such
  regulations are competitively neutral among categories of consultants
  and preserve the ability of compensation committees to retain the
  services of members of any such category.
  
  
  

`(e) Authority To Engage Independent Counsel and Other
Advisors- The compensation committee of each issuer, in its capacity as
a committee of the board of directors, shall have the authority, in its
sole discretion, to retain and obtain the advice of independent counsel
and other advisers meeting the standards for independence promulgated
pursuant to subsection (c), and the compensation committee shall be
directly responsible for the appointment, compensation, and oversight
of the work of such independent counsel and other advisers. This
provision shall not be construed to require the compensation committee
to implement or act consistently with the advice or recommendations of
such independent counsel and other advisers, and shall not otherwise
affect the compensation committee's ability or obligation to exercise
its own judgment in fulfillment of its duties.

`(f) Funding- Each issuer shall provide for appropriate
funding, as determined by the compensation committee, in its capacity
as a committee of the board of directors, for payment of compensation--

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  `(1) to any compensation consultant to the compensation
  committee that meets the standards for independence promulgated
  pursuant to subsection (c), and
  
  
  

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  `(2) to any independent counsel or other adviser to the compensation committee.'.
  
  
  

(b) Study and Review Required-

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  (1) IN GENERAL- The Securities and Exchange Commission
  shall conduct a study and review of the use of compensation consultants
  meeting the standards for independence promulgated pursuant to section
  10B(c) of the Securities Exchange Act of 1934 (as added by subsection
  (a)), and the effects of such use.
  
  
  

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  (2) REPORT TO CONGRESS- Not later than 2 years after
  the rules required by the amendment made by this section take effect,
  the Commission shall submit a report to the Congress on the results of
  the study and review required by this paragraph.
  
  
  

SEC. 4. ENHANCED COMPENSATION STRUCTURE REPORTING TO REDUCE PERVERSE INCENTIVES.

(a) Enhanced Disclosure and Reporting of Compensation Arrangements-

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  (1) IN GENERAL- Not later than 9 months after the date
  of enactment of this Act, the appropriate Federal regulators jointly
  shall prescribe regulations to require each covered financial
  institution to disclose to the appropriate Federal regulator the
  structures of all incentive-based compensation arrangements offered by
  such covered financial institutions sufficient to determine whether the
  compensation structure--
  
  
  

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    (A) is aligned with sound risk management;
    
    
    
  
  
  
  

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    (B) is structured to account for the time horizon of risks; and
    
    
    
  
  
  
  

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    (C) meets such other criteria as the appropriate
    Federal regulators jointly may determine to be appropriate to reduce
    unreasonable incentives offered by such institutions for employees to
    take undue risks that--
    
    
    
  
  
  
  

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      (i) could threaten the safety and soundness of covered financial institutions; or
      
      
      
    
    
    
    
  
  
  
  

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      (ii) could have serious adverse effects on economic conditions or financial stability.
      
      
      
    
    
    
    
  
  
  
  

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  (2) RULES OF CONSTRUCTION- Nothing in this subsection
  shall be construed as requiring the reporting of the actual
  compensation of particular individuals. Nothing in this subsection
  shall be construed to require a covered financial institution that does
  not have an incentive-based payment arrangement to make the disclosures
  required under this subsection.
  
  
  

(b) Prohibition on Certain Compensation Arrangements- Not
later than 9 months after the date of enactment of this Act, and taking
into account the factors described in subparagraphs (A), (B), and (C)
of subsection (a)(1), the appropriate Federal regulators shall jointly
prescribe regulations that prohibit any incentive-based payment
arrangement, or any feature of any such arrangement, that the
regulators determine encourages inappropriate risks by covered
financial institutions that--

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  (1) could threaten the safety and soundness of covered financial institutions; or
  
  
  

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  (2) could have serious adverse effects on economic conditions or financial stability.
  
  
  

(c) Enforcement- The provisions of this section shall be
enforced under section 505 of the Gramm-Leach-Bliley Act and, for
purposes of such section, a violation of this section shall be treated
as a violation of subtitle A of title V of such Act.

(d) Definitions- As used in this section--

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  (1) the term `appropriate Federal regulator' means--
  
  
  

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    (A) the Board of Governors of the Federal Reserve System;
    
    
    
  
  
  
  

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    (B) the Office of the Comptroller of the Currency;
    
    
    
  
  
  
  

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    (C) the Board of Directors of the Federal Deposit Insurance Corporation;
    
    
    
  
  
  
  

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    (D) the Director of the Office of Thrift Supervision;
    
    
    
  
  
  
  

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    (E) the National Credit Union Administration Board;
    
    
    
  
  
  
  

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    (F) the Securities and Exchange Commission; and
    
    
    
  
  
  
  

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    (G) the Federal Housing Finance Agency; and
    
    
    
  
  
  
  

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  (2) the term `covered financial institution' means--
  
  
  

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    (A) a depository institution or depository
    institution holding company, as such terms are defined in section 3 of
    the Federal Deposit Insurance Act (12 U.S.C. 1813);
    
    
    
  
  
  
  

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    (B) a broker-dealer registered under section 15 of the Securities Exchange Act of 1934 (15 U.S.C. 78o);
    
    
    
  
  
  
  

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    (C) a credit union, as described in section 19(b)(1)(A)(iv) of the Federal Reserve Act;
    
    
    
  
  
  
  

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    (D) an investment advisor, as such term is defined
    in section 202(a)(11) of the Investment Advisers Act of 1940 (15 U.S.C.
    80b-2(a)(11));
    
    
    
  
  
  
  

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    (E) the Federal National Mortgage Association;
    
    
    
  
  
  
  

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    (F) the Federal Home Loan Mortgage Corporation; and
    
    
    
  
  
  
  

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    (G) any other financial institution that the
    appropriate Federal regulators, jointly, by rule, determine should be
    treated as a covered financial institution for purposes of this section.
    
    
    
  
  
  
  

(e) Exemption for Certain Financial Institutions- The
requirements of this section shall not apply to covered financial
institutions with assets of less than $1,000,000,000.

(f) Limitation- No regulation promulgated pursuant to this
section shall be allowed to require the recovery of incentive-based
compensation under compensation arrangements in effect on the date of
enactment of this Act, provided such compensation agreements are for a
period of no more than 24 months. Nothing in this Act shall prevent or
limit the recovery of incentive-based compensation under any other
applicable law.

(g) GAO Study-

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  (1) STUDY REQUIRED-
  
  
  

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    (A) IN GENERAL- The Comptroller General of the
    United States shall carry out a study to determine whether there is a
    correlation between compensation structures and excessive risk taking.
    
    
    
  
  
  
  

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    (B) FACTORS TO CONSIDER- In carrying out the study required under subparagraph (A), the Comptroller General shall--
    
    
    
  
  
  
  

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      (i) consider compensation structures used by companies from 2000 to 2008; and
      
      
      
    
    
    
    
  
  
  
  

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      (ii) compare companies that failed, or nearly
      failed but for government assistance, to companies that remained viable
      throughout the housing and credit market crisis of 2007 and 2008,
      including the compensation practices of all such companies.
      
      
      
    
    
    
    
  
  
  
  

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    (C) DETERMINING COMPANIES THAT FAILED OR NEARLY
    FAILED- In determining whether a company failed, or nearly failed but
    for government assistance, for purposes of subparagraph (B)(ii), the
    Comptroller General shall focus on--
    
    
    
  
  
  
  

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      (i) companies that received exceptional
      assistance under the Troubled Asset Relief Program under title I of the
      Emergency Economic Stabilization Act of 2009 (12 U.S.C. 5211 et seq.)
      or other forms of significant government assistance, including under
      the Automotive Industry Financing Program, the Targeted Investment
      Program, the Asset Guarantee Program, and the Systemically Significant
      Failing Institutions Program;
      
      
      
    
    
    
    
  
  
  
  

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      (ii) the Federal National Mortgage Association;
      
      
      
    
    
    
    
  
  
  
  

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      (iii) the Federal Home Loan Mortgage Corporation; and
      
      
      
    
    
    
    
  
  
  
  

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      (iv) companies that participated in the
      Security and Exchange Commission's Consolidated Supervised Entities
      Program as of January 2008.
      
      
      
    
    
    
    
  
  
  
  

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  (2) REPORT- Not later than the end of the 1-year period
  beginning on the date of the enactment of this Act, the Comptroller
  General shall issue a re-
  
  
  

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  port to the Congress containing the results of the study required under paragraph (1).
  
  
  

Passed the House of Representatives July 31, 2009.

Attest:

LORRAINE C. MILLER,

Clerk.