II 

111TH CONGRESS 

2D SESSION S. 3049 

To give shareholders a vote on executive pay, to hold executives accountable 

for failure or fraud, to structure executive pay to encourage the longterm viability of companies, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

FEBRUARY 26, 2010 

Mr. MENENDEZ introduced the following bill; which was read twice and 

referred to the Committee on Banking, Housing, and Urban Affairs 

A BILL 

To give shareholders a vote on executive pay, to hold executives accountable for failure or fraud, to structure executive pay to encourage the long-term viability of companies, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Corporate Executive 

5 Accountability Act of 2010’’. 

6 SEC. 2. SHAREHOLDER VOTES ON EXECUTIVE PAY. 

7 (a) SHAREHOLDER VOTES ON EXECUTIVE PAY.— 

8 Section 14 of the Securities Exchange Act of 1934 (15 


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1 U.S.C. 78n) is amended by adding at the end the following 

2 new subsection: 

3 ‘‘(i) ANNUAL SHAREHOLDER APPROVAL OF EXECU4 TIVE COMPENSATION.— 

5 ‘‘(1) ANNUAL VOTE.—Any proxy or consent or 

6 authorization (the solicitation of which is subject to 

7 the rules of the Commission pursuant to subsection 

8 (a)) for an annual meeting of the shareholders to 

9 elect directors (or a special meeting in lieu of such 

10 meeting) where proxies are solicited in respect of 

11 any security registered under section 12 occurring 

12 on or after the date that is 6 months after the date 

13 on which final rules are issued under paragraph (4), 

14 shall provide for a separate shareholder vote to ap15 prove the compensation of executives as disclosed 

16 pursuant to the Commission’s compensation disclo17 sure rules for named executive officers (which disclo18 sure shall include the compensation committee re19 port, the compensation discussion and analysis, the 

20 compensation tables, and any related materials, to 

21 the extent required by such rules). The shareholder 

22 vote shall not be binding on the issuer or the board 

23 of directors and shall not be construed as overruling 

24 a decision by such board, nor to create or imply any 

25 additional fiduciary duty by such board, nor shall 


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1 such vote be construed to restrict or limit the ability 

2 of shareholders to make proposals for inclusion in 

3 such proxy materials related to executive compensa4 tion. 

5 ‘‘(2) SHAREHOLDER APPROVAL OF GOLDEN

6 PARACHUTE COMPENSATION.— 

7 ‘‘(A) DISCLOSURE.—In any proxy or con8 sent solicitation material (the solicitation of 

9 which is subject to the rules of the Commission 

10 pursuant to subsection (a)) for a meeting of the 

11 shareholders occurring on or after the date that 

12 is 6 months after the date on which final rules 

13 are issued under paragraph (4), at which share14 holders are asked to approve an acquisition, 

15 merger, consolidation, or proposed sale or other 

16 disposition of all or substantially all the assets 

17 of an issuer, the person making such solicita18 tion shall disclose in the proxy or consent solici19 tation material, in a clear and simple form in 

20 accordance with regulations to be promulgated 

21 by the Commission, any agreements or under22 standings that such person has with any named 

23 executive officers of such issuer (or of the ac24 quiring issuer, if such issuer is not the acquir25 ing issuer) concerning any type of compensation 


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1 (whether present, deferred, or contingent) that 

2 is based on or otherwise relates to the acquisi3 tion, merger, consolidation, sale, or other dis4 position of all or substantially all of the assets 

5 of the issuer and the aggregate total of all such 

6 compensation that may (and the conditions 

7 upon which it may) be paid or become payable 

8 to or on behalf of such executive officer. 

9 ‘‘(B) SHAREHOLDER APPROVAL.—Any 

10 proxy or consent or authorization relating to 

11 the proxy or consent solicitation material con12 taining the disclosure required by subparagraph 

13 (A) shall provide for a separate shareholder 

14 vote to approve such agreements or under15 standings and compensation as disclosed, unless 

16 such agreements or understandings have been 

17 subject to a shareholder vote under paragraph 

18 (1). A vote by the shareholders shall not be 

19 binding on the issuer or the board of directors 

20 of the issuer or the person making the solicita21 tion and shall not be construed as overruling a 

22 decision by any such person or issuer, nor to 

23 create or imply any additional fiduciary duty by 

24 any such person or issuer. 


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1 ‘‘(3) DISCLOSURE OF VOTES.—Every institu2 tional investment manager subject to section 13(f) 

3 shall report at least annually how it voted on any 

4 shareholder vote pursuant to paragraph (1) or (2) of 

5 this section, unless such vote is otherwise required to 

6 be reported publicly by rule or regulation of the 

7 Commission. 

8 ‘‘(4) RULEMAKING.—Not later than 6 months 

9 after the date of enactment of this Act, the Commis10 sion shall issue final rules to implement this sub11 section.’’. 

12 (b) DISCLOSURE REQUIREMENTS.— 

13 (1) IN GENERAL.—The Commission shall 

14 amend section 229.402 of title 17, Code of Federal 

15 Regulations, to require each issuer to disclose in any 

16 filing of the issuer described in section 229.10(a) of 

17 title 17, Code of Federal Regulations (or any suc18 cessor thereto)— 

19 (A) the median of the annual total com20 pensation of all employees of the issuer, except 

21 the chief executive officer (or any equivalent po22 sition) of the issuer; 

23 (B) the annual total compensation of the 

24 chief executive officer (or any equivalent posi25 tion) of the issuer; and 


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1 (C) the ratio of the amount described in 

2 paragraph (1) to the amount described in para3 graph (2). 

4 (2) TOTAL COMPENSATION.—For purposes of 

5 this subsection, the total compensation of an em6 ployee of an issuer shall be determined in accordance 

7 with section 229.402(c)(2)(x) of title 17, Code of 

8 Federal Regulations, as in effect on the day before 

9 the date of enactment of this Act. 

10 SEC. 3. EXECUTIVE ACCOUNTABILITY FOR FAILURE OR 

11 FRAUD. 

12 (a) CLAWBACK.— 

13 (1) SECURITIES EXCHANGE ACT OF 1934.—Sec14 tion 16 of the Securities Exchange Act of 1934 (15 

15 U.S.C. 78p) is amended by adding at the end the 

16 following: 

17 ‘‘(h) CLAWBACK POLICY.— 

18 ‘‘(1) LISTING STANDARDS.—The Commission 

19 shall, by rule, direct the national securities ex20 changes and national securities associations to pro21 hibit the listing of any security of an issuer that 

22 does not comply with the requirements of this sub23 section. 

24 ‘‘(2) RECOVERY OF FUNDS.—The rules of the 

25 Commission under paragraph (1) shall require each 


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1 issuer to develop and implement a policy providing 

2 that, in the event that the issuer is required to pre3 pare an accounting restatement due to the material 

4 noncompliance of the issuer with any financial re5 porting requirement under the securities laws, the 

6 issuer shall— 

7 ‘‘(A) recover from any current or former 

8 employee of the issuer who received incentive9 based compensation (including stock options 

10 awarded as compensation) based on the erro11 neous data, an amount equal to the difference 

12 between the amount actually paid to the em13 ployee and the amount that would have been 

14 paid to the employee under the accounting re15 statement; and 

16 ‘‘(B) disclose, together with the accounting 

17 restatement— 

18 ‘‘(i) a list of any bonuses or stock 

19 sales by the employees of the issuer that 

20 are affected by the accounting restatement, 

21 including the amounts of such bonuses or 

22 stock sales; and 

23 ‘‘(ii) the extent to which the employ24 ees of the issuer have repaid any amounts 

25 under subparagraph (A).’’. 


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1 (2) SARBANES-OXLEY ACT OF 2002.—Section 

2 304 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 

3 7243) is amended— 

4 (A) in subsection (a)— 

5 (i) in the matter preceding paragraph 

6 (1), by striking ‘‘, as a result of mis7 conduct,’’; 

8 (ii) in paragraph (1), by striking ‘‘12- 

9 month’’ and inserting ‘‘2-year’’; and 

10 (iii) in paragraph (2), by striking ‘‘12- 

11 month’’ and inserting ‘‘2-year’’; and 

12 (B) by adding at the end the following: 

13 ‘‘(c) COMMENCEMENT OF ACTION BY COMMISSION.— 

14 If the chief executive officer or the chief financial officer 

15 of the issuer has not made a reimbursement required 

16 under this section before the expiration of the 90-day pe17 riod beginning on the date on which the accounting re18 statement occurs, the Commission may commence an ac19 tion on behalf of the issuer to recover any funds that the 

20 chief executive officer or the chief financial officer is re21 quired to reimburse under subsection (a). 

22 ‘‘(d) ACTION BY SHAREHOLDERS.— 

23 ‘‘(1) IN GENERAL.—A shareholder of an issuer 

24 may commence an action on behalf of the issuer in 

25 any district court of the United States to recover 


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1 any funds the chief executive officer or the chief fi2 nancial officer is required to reimburse under sub3 section (a), if— 

4 ‘‘(A) the Commission does not commence 

5 an action under subsection (c) before the expi6 ration of the 120-day period following the date 

7 on which the accounting restatement occurs; 

8 and 

9 ‘‘(B) the chief executive officer or the chief 

10 financial officer of the issuer has not made a 

11 reimbursement required under this section as of 

12 the date on which the action is commenced. 

13 ‘‘(2) STAY OF ACTIONS.—If more than 1 share14 holder of an issuer commences an action under this 

15 subsection with respect to the same accounting re16 statement, a district court shall stay all actions com17 menced by the shareholders, except for the action 

18 commenced by the shareholder that owns the great19 est number of shares of the issuer.’’. 

20 (b) SHAREHOLDER APPROVAL OF SEVERANCE

21 AGREEMENTS.—The Securities Exchange Act of 1934 (15 

22 U.S.C. 78a et seq.) is amended by inserting after section 

23 10A the following: 


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1 ‘‘SEC. 10B. SEVERANCE AGREEMENTS TIED TO PERFORM2 ANCE. 

3 ‘‘(a) COMMISSION RULES.— 

4 ‘‘(1) IN GENERAL.—Not later than 270 days 

5 after the date of enactment of this subsection, the 

6 Commission shall, by rule, direct each national secu7 rities exchange and national securities association to 

8 prohibit the listing of any security of an issuer that 

9 is not in compliance with the requirements of any 

10 portion of subsection (b). 

11 ‘‘(2) OPPORTUNITY TO CURE.—The rules issued 

12 under paragraph (1) shall provide for appropriate 

13 procedures for an issuer to have an opportunity to 

14 cure any defects that would be the basis for such a 

15 prohibition before the imposition of such prohibition. 

16 ‘‘(3) CONSIDERATIONS.—The rules issued 

17 under paragraph (1) shall be implemented with due 

18 regard for contracts in existence on the date of en19 actment of this subsection. 

20 ‘‘(b) SEVERANCE AGREEMENTS TIED TO PERFORM21 ANCE.—The board of directors of an issuer, or a com22 mittee of such board of directors, may not enter into an 

23 agreement providing for severance payments to a senior 

24 executive officer who is terminated for cause, as deter25 mined by the board of directors. 


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1 ‘‘(c) TERMINATION FOR CAUSE.—For purposes of 

2 this section, the term ‘for cause’, when used with respect 

3 to the termination of a senior executive officer of an 

4 issuer, means termination due to— 

5 ‘‘(1) the willful and continued failure of the 

6 senior executive officer to perform substantially the 

7 duties of the senior executive officer with respect to 

8 the issuer, unless such failure is due to incapacity 

9 resulting from a physical or mental illness of the 

10 senior executive officer; 

11 ‘‘(2) the willful unapproved absenteeism of the 

12 senior executive officer, unless such absenteeism is 

13 due to a temporary or permanent disability of the 

14 senior executive officer; 

15 ‘‘(3) the senior executive officer willfully engag16 ing in misconduct that the board of directors of the 

17 issuer reasonably believes does or may materially ad18 versely affect the business or operations of the 

19 issuer; 

20 ‘‘(4) a material breach of an employment agree21 ment by the senior executive officer; 

22 ‘‘(5) misconduct by the senior executive officer 

23 that is of such a serious or substantial nature that 

24 a reasonable likelihood exists that the misconduct 

25 would materially injure the reputation of the issuer 


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1 or a subsidiary of the issuer if the senior executive 

2 officer were to remain employed by the issuer; 

3 ‘‘(6) harassment or discrimination by the senior 

4 executive officer against the employees, customers, 

5 or vendors of the issuer, in violation of the policies 

6 of the issuer; 

7 ‘‘(7) the misappropriation of funds or assets of 

8 the issuer by the senior executive officer for personal 

9 use; 

10 ‘‘(8) the willful violation of the policies or 

11 standards of business conduct of the issuer, as de12 termined in good faith by the board of directors of 

13 the issuer; 

14 ‘‘(9) the disclosure of confidential information 

15 by the senior executive officer in violation of the 

16 written policies of the issuer that is demonstrably in17 jurious to the issuer; 

18 ‘‘(10) the conviction of the senior executive offi19 cer for, or a plea of guilty or nolo contendere made 

20 by the senior executive officer to, a charge of com21 mission of a felony; or 

22 ‘‘(11) any other action that the board of direc23 tors of the issuer determines is detrimental or inju24 rious to the issuer or the shareholders of the 

25 issuer.’’. 


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1 SEC. 4. LIMITATIONS ON EQUITY COMPENSATION OF EXEC2 UTIVE OFFICERS. 

3 Section 16 of the Securities Exchange Act of 1934 

4 (15 U.S.C. 78p) is amended by adding at the end the fol5 lowing: 

6 ‘‘(j) EQUITY COMPENSATION OF EXECUTIVE OFFI7 CERS.— 

8 ‘‘(1) DEFINITIONS.—For purposes of this sub9 section— 

10 ‘‘(A) the term ‘award of equity compensa11 tion’ means an award of share-based compensa12 tion; and 

13 ‘‘(B) the term ‘executive officer’ has the 

14 same meaning as in section 240.3b–7 of title 

15 17, Code of Federal Regulations, or any suc16 cessor thereto. 

17 ‘‘(2) LISTING STANDARDS.—The Commission 

18 shall, by rule, direct each national securities ex19 change and registered securities association to pro20 hibit the listing of any security of an issuer that 

21 does not comply with the requirements of this sub22 section. 

23 ‘‘(3) LIMITATIONS ON EQUITY COMPENSATION

24 OF EXECUTIVE OFFICERS.—The rules of the Com25 mission under paragraph (2) shall prohibit an execu26 tive officer or member of the board of directors of 


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1 an issuer who receives an award of equity compensa2 tion from selling more than— 

3 ‘‘(A) 20 percent of the shares that the ex4 ecutive officer or member of the board of direc5 tors is entitled to receive during the first year 

6 following the vesting of the award; 

7 ‘‘(B) 40 percent of the shares that the ex8 ecutive officer or member of the board of direc9 tors is entitled to receive during the second year 

10 following the vesting of the award, less any 

11 shares sold under subparagraph (A); 

12 ‘‘(C) 60 percent of the shares that the ex13 ecutive officer or member of the board of direc14 tors is entitled to receive during the third year 

15 following the vesting of the award, less any 

16 shares sold under subparagraphs (A) and (B); 

17 and 

18 ‘‘(D) 80 percent of the shares that the ex19 ecutive officer or member of the board of direc20 tors is entitled to receive during the fourth year 

21 following the vesting of the award, less any 

22 shares sold under subparagraphs (A) through 

23 (C). 

24 ‘‘(4) VESTING.—For purposes of this sub25 section, an award of equity compensation vests on 


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1 the date on which the right of the individual who re2 ceives the award to receive or retain shares under 

3 the award is no longer contingent on satisfaction of 

4 a condition relating to the service or performance of 

5 the individual.’’. 

Æ 


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