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[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[S. 3049 Introduced in Senate (IS)]

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 long-term 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.

    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 Executive Accountability 
Act of 2010''.

SEC. 2. SHAREHOLDER VOTES ON EXECUTIVE PAY.

    (a) Shareholder Votes on Executive Pay.--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.--
            ``(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.
            ``(2) Shareholder approval of golden parachute 
        compensation.--
                    ``(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.
                    ``(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.
            ``(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 paragraph (1) 
        or (2) of this section, unless such vote is otherwise required 
        to be reported publicly by rule or regulation of the 
        Commission.
            ``(4) Rulemaking.--Not later than 6 months after the date 
        of enactment of this Act, the Commission shall issue final 
        rules to implement this subsection.''.
    (b) Disclosure Requirements.--
            (1) In general.--The Commission shall amend section 229.402 
        of title 17, Code of Federal Regulations, to require each 
        issuer to disclose in any filing of the issuer described in 
        section 229.10(a) of title 17, Code of Federal Regulations (or 
        any successor thereto)--
                    (A) the median of the annual total compensation of 
                all employees of the issuer, except the chief executive 
                officer (or any equivalent position) of the issuer;
                    (B) the annual total compensation of the chief 
                executive officer (or any equivalent position) of the 
                issuer; and
                    (C) the ratio of the amount described in paragraph 
                (1) to the amount described in paragraph (2).
            (2) Total compensation.--For purposes of this subsection, 
        the total compensation of an employee of an issuer shall be 
        determined in accordance with section 229.402(c)(2)(x) of title 
        17, Code of Federal Regulations, as in effect on the day before 
        the date of enactment of this Act.

SEC. 3. EXECUTIVE ACCOUNTABILITY FOR FAILURE OR FRAUD.

    (a) Clawback.--
            (1) Securities exchange act of 1934.--Section 16 of the 
        Securities Exchange Act of 1934 (15 U.S.C. 78p) is amended by 
        adding at the end the following:
    ``(h) Clawback Policy.--
            ``(1) Listing standards.--The Commission shall, by rule, 
        direct the national securities exchanges and national 
        securities associations to prohibit the listing of any security 
        of an issuer that does not comply with the requirements of this 
        subsection.
            ``(2) Recovery of funds.--The rules of the Commission under 
        paragraph (1) shall require each issuer to develop and 
        implement a policy providing that, in the event that the issuer 
        is required to prepare an accounting restatement due to the 
        material noncompliance of the issuer with any financial 
        reporting requirement under the securities laws, the issuer 
        shall--
                    ``(A) recover from any current or former employee 
                of the issuer who received incentive-based compensation 
                (including stock options awarded as compensation) based 
                on the erroneous data, an amount equal to the 
                difference between the amount actually paid to the 
                employee and the amount that would have been paid to 
                the employee under the accounting restatement; and
                    ``(B) disclose, together with the accounting 
                restatement--
                            ``(i) a list of any bonuses or stock sales 
                        by the employees of the issuer that are 
                        affected by the accounting restatement, 
                        including the amounts of such bonuses or stock 
                        sales; and
                            ``(ii) the extent to which the employees of 
                        the issuer have repaid any amounts under 
                        subparagraph (A).''.
            (2) Sarbanes-oxley act of 2002.--Section 304 of the 
        Sarbanes-Oxley Act of 2002 (15 U.S.C. 7243) is amended--
                    (A) in subsection (a)--
                            (i) in the matter preceding paragraph (1), 
                        by striking ``, as a result of misconduct,'';
                            (ii) in paragraph (1), by striking ``12-
                        month'' and inserting ``2-year''; and
                            (iii) in paragraph (2), by striking ``12-
                        month'' and inserting ``2-year''; and
                    (B) by adding at the end the following:
    ``(c) Commencement of Action by Commission.--If the chief executive 
officer or the chief financial officer of the issuer has not made a 
reimbursement required under this section before the expiration of the 
90-day period beginning on the date on which the accounting restatement 
occurs, the Commission may commence an action on behalf of the issuer 
to recover any funds that the chief executive officer or the chief 
financial officer is required to reimburse under subsection (a).
    ``(d) Action by Shareholders.--
            ``(1) In general.--A shareholder of an issuer may commence 
        an action on behalf of the issuer in any district court of the 
        United States to recover any funds the chief executive officer 
        or the chief financial officer is required to reimburse under 
        subsection (a), if--
                    ``(A) the Commission does not commence an action 
                under subsection (c) before the expiration of the 120-
                day period following the date on which the accounting 
                restatement occurs; and
                    ``(B) the chief executive officer or the chief 
                financial officer of the issuer has not made a 
                reimbursement required under this section as of the 
                date on which the action is commenced.
            ``(2) Stay of actions.--If more than 1 shareholder of an 
        issuer commences an action under this subsection with respect 
        to the same accounting restatement, a district court shall stay 
        all actions commenced by the shareholders, except for the 
        action commenced by the shareholder that owns the greatest 
        number of shares of the issuer.''.
    (b) Shareholder Approval of Severance Agreements.--The Securities 
Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended by inserting 
after section 10A the following:

``SEC. 10B. SEVERANCE AGREEMENTS TIED TO PERFORMANCE.

    ``(a) Commission Rules.--
            ``(1) In general.--Not later than 270 days after the date 
        of enactment of this subsection, the Commission shall, by rule, 
        direct each national securities exchange and national 
        securities association to prohibit the listing of any security 
        of an issuer that is not in compliance with the requirements of 
        any portion of subsection (b).
            ``(2) Opportunity to cure.--The rules issued 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 such a prohibition before the imposition of such 
        prohibition.
            ``(3) Considerations.--The rules issued under paragraph (1) 
        shall be implemented with due regard for contracts in existence 
        on the date of enactment of this subsection.
    ``(b) Severance Agreements Tied to Performance.--The board of 
directors of an issuer, or a committee of such board of directors, may 
not enter into an agreement providing for severance payments to a 
senior executive officer who is terminated for cause, as determined by 
the board of directors.
    ``(c) Termination for Cause.--For purposes of this section, the 
term `for cause', when used with respect to the termination of a senior 
executive officer of an issuer, means termination due to--
            ``(1) the willful and continued failure of the senior 
        executive officer to perform substantially the duties of the 
        senior executive officer with respect to the issuer, unless 
        such failure is due to incapacity resulting from a physical or 
        mental illness of the senior executive officer;
            ``(2) the willful unapproved absenteeism of the senior 
        executive officer, unless such absenteeism is due to a 
        temporary or permanent disability of the senior executive 
        officer;
            ``(3) the senior executive officer willfully engaging in 
        misconduct that the board of directors of the issuer reasonably 
        believes does or may materially adversely affect the business 
        or operations of the issuer;
            ``(4) a material breach of an employment agreement by the 
        senior executive officer;
            ``(5) misconduct by the senior executive officer that is of 
        such a serious or substantial nature that a reasonable 
        likelihood exists that the misconduct would materially injure 
        the reputation of the issuer or a subsidiary of the issuer if 
        the senior executive officer were to remain employed by the 
        issuer;
            ``(6) harassment or discrimination by the senior executive 
        officer against the employees, customers, or vendors of the 
        issuer, in violation of the policies of the issuer;
            ``(7) the misappropriation of funds or assets of the issuer 
        by the senior executive officer for personal use;
            ``(8) the willful violation of the policies or standards of 
        business conduct of the issuer, as determined in good faith by 
        the board of directors of the issuer;
            ``(9) the disclosure of confidential information by the 
        senior executive officer in violation of the written policies 
        of the issuer that is demonstrably injurious to the issuer;
            ``(10) the conviction of the senior executive officer for, 
        or a plea of guilty or nolo contendere made by the senior 
        executive officer to, a charge of commission of a felony; or
            ``(11) any other action that the board of directors of the 
        issuer determines is detrimental or injurious to the issuer or 
        the shareholders of the issuer.''.

SEC. 4. LIMITATIONS ON EQUITY COMPENSATION OF EXECUTIVE OFFICERS.

    Section 16 of the Securities Exchange Act of 1934 (15 U.S.C. 78p) 
is amended by adding at the end the following:
    ``(j) Equity Compensation of Executive Officers.--
            ``(1) Definitions.--For purposes of this subsection--
                    ``(A) the term `award of equity compensation' means 
                an award of share-based compensation; and
                    ``(B) the term `executive officer' has the same 
                meaning as in section 240.3b-7 of title 17, Code of 
                Federal Regulations, or any successor thereto.
            ``(2) Listing standards.--The Commission shall, by rule, 
        direct each national securities exchange and registered 
        securities association to prohibit the listing of any security 
        of an issuer that does not comply with the requirements of this 
        subsection.
            ``(3) Limitations on equity compensation of executive 
        officers.--The rules of the Commission under paragraph (2) 
        shall prohibit an executive officer or member of the board of 
        directors of an issuer who receives an award of equity 
        compensation from selling more than--
                    ``(A) 20 percent of the shares that the executive 
                officer or member of the board of directors is entitled 
                to receive during the first year following the vesting 
                of the award;
                    ``(B) 40 percent of the shares that the executive 
                officer or member of the board of directors is entitled 
                to receive during the second year following the vesting 
                of the award, less any shares sold under subparagraph 
                (A);
                    ``(C) 60 percent of the shares that the executive 
                officer or member of the board of directors is entitled 
                to receive during the third year following the vesting 
                of the award, less any shares sold under subparagraphs 
                (A) and (B); and
                    ``(D) 80 percent of the shares that the executive 
                officer or member of the board of directors is entitled 
                to receive during the fourth year following the vesting 
                of the award, less any shares sold under subparagraphs 
                (A) through (C).
            ``(4) Vesting.--For purposes of this subsection, an award 
        of equity compensation vests on the date on which the right of 
        the individual who receives the award to receive or retain 
        shares under the award is no longer contingent on satisfaction 
        of a condition relating to the service or performance of the 
        individual.''.
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