II 

111TH CONGRESS 

2D SESSION S. 3149 

To amend the Internal Revenue Code of 1986 to limit certain executive 

compensation paid by systemically significant financial institutions. 

IN THE SENATE OF THE UNITED STATES 

MARCH 22 (legislative day, MARCH 19), 2010 

Mr. NELSON of Florida introduced the following bill; which was read twice and 

referred to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to limit certain 

executive compensation paid by systemically significant 

financial institutions. 

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 ‘‘Wall Street Compensa5 tion Reform Act of 2010’’. 


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1 SEC. 2. EXECUTIVE COMPENSATION PAID BY SYSTEM2 ICALLY SIGNIFICANT FINANCIAL INSTITU3 TIONS. 

4 (a) IN GENERAL.—Subsection (m) of section 162 of 

5 the Internal Revenue Code of 1986 is amended by adding 

6 at the end the following new paragraph: 

7 ‘‘(6) SPECIAL RULE FOR APPLICATION TO SYS8 TEMICALLY SIGNIFICANT FINANCIAL INSTITU9 TIONS.— 

10 ‘‘(A) IN GENERAL.—In the case of an em11 ployer which is a systemically significant finan12 cial institution, this subsection shall apply with 

13 the following modifications: 

14 ‘‘(i) NON-PUBLIC ENTITIES.—Para15 graph (1) shall be applied by substituting 

16 ‘employer’ for ‘publicly held corporation’. 

17 ‘‘(ii) COVERED EMPLOYEES.—Para18 graph (3) shall be applied— 

19 ‘‘(I) by substituting ‘such em20 ployee is among the 25 highest com21 pensated employees’ for so much of 

22 subparagraph (B) as precedes ‘for the 

23 taxable year (other than the chief ex24 ecutive officer).’, and 

25 ‘‘(II) in addition to the individ26 uals described in such paragraph (inVerDate Nov 24 2008 02:11 Mar 23, 2010 Jkt 089200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S3149.IS S3149

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1 cluding the individuals described in 

2 subclause (I) of this clause), by treat3 ing any employee whose actions have 

4 a material impact on the risk expo5 sure of the taxpayer as a covered em6 ployee. 

7 Any employee whose applicable employee 

8 remuneration for the taxable year exceeds 

9 $1,000,000 is presumed to engage in ac10 tions which have a material impact on the 

11 risk exposure of the taxpayer unless the 

12 taxpayer submits an information return to 

13 the Secretary which describes the role and 

14 responsibilities of such employee and the 

15 reason such employee should not be consid16 ered to have a material impact on the risk 

17 exposure of the taxpayer. Such return shall 

18 be deemed to have been approved unless 

19 the Secretary notifies the taxpayer in writ20 ing within 90 days of the submission of 

21 such return. For purposes of this clause, 

22 the term ‘employee’ includes employees 

23 within the meaning of section 401(c)(1). 


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1 ‘‘(iii) REMUNERATION PAYABLE ON

2 COMMISSION BASIS.—Subparagraph (B) of 

3 paragraph (4) shall not apply. 

4 ‘‘(iv) DEFERRED DEDUCTION EXECU5 TIVE REMUNERATION.—In the case of any 

6 deferred deduction executive remuneration 

7 (as determined under rules similar to the 

8 rules of paragraph (5)(F), if executive re9 muneration for purposes of such paragraph 

10 included remuneration of covered employ11 ees as defined in clause (ii) of this para12 graph, and if the year in which the appli13 cable services were performed were treated 

14 as an applicable taxable year), rules simi15 lar to the rules of paragraph (5)(A)(ii) 

16 shall apply by substituting ‘$1,000,000’ for 

17 ‘$500,000’. 

18 ‘‘(B) SYSTEMICALLY SIGNIFICANT FINAN19 CIAL INSTITUTION.— 

20 ‘‘(i) IN GENERAL.—For purposes of 

21 this paragraph, the term ‘systemically sig22 nificant financial institution’ means an en23 tity which engages primarily in activities 

24 which are financial in nature (as deter25 mined under section 4(k) of the Bank 


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1 Holding Company Act of 1956), and 

2 which— 

3 ‘‘(I) owns or controls assets 

4 greater than $25,000,000,000, or 

5 ‘‘(II) owns or controls assets 

6 greater than $10,000,000,000 and 

7 maintains a ratio of debt to equity 

8 which is greater than 20 to 1. 

9 ‘‘(ii) CLASSIFICATION.—A taxpayer 

10 which is a systemically significant financial 

11 institution for any taxable year shall be a 

12 systemically significant financial institution 

13 for purposes of all subsequent taxable 

14 years. 

15 ‘‘(C) SPECIAL RULES FOR PERFORMANCE16 BASED COMPENSATION.—Remuneration payable 

17 solely on account of the attainment of one or 

18 more performance goals (hereinafter ‘perform19 ance-based remuneration’) which is paid by any 

20 systemically significant financial institution to 

21 any covered employee (as determined under 

22 subparagraph (A)(ii)) shall not be excluded 

23 under subparagraph (C) of paragraph (4) from 

24 treatment as applicable employee remuneration 

25 unless the following requirements are met: 


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1 ‘‘(i) PERFORMANCE-BASED COM2 PENSATION POOL.—The amount and allo3 cation of the taxpayer’s performance-based 

4 remuneration for covered employees are 

5 determined by the compensation committee 

6 required under paragraph (4)(C)(i) by tak7 ing into account— 

8 ‘‘(I) the cost and quantity of cap9 ital required to support the risks 

10 taken by the taxpayer in the conduct 

11 of the financial activities of the tax12 payer, 

13 ‘‘(II) the cost and quantity of the 

14 liquidity risk assumed by the taxpayer 

15 in the conduct of such activities, and 

16 ‘‘(III) the timing and likelihood 

17 of potential future revenues from such 

18 activities. 

19 ‘‘(ii) MATERIAL TERMS.—The mate20 rial terms of performance-based remunera21 tion paid to covered employees specify 

22 that— 

23 ‘‘(I) not less than 50 percent of 

24 such remuneration must vest no earVerDate Nov 24 2008 02:11 Mar 23, 2010 Jkt 089200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S3149.IS S3149

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1 lier than 5 years after the date of 

2 payment, 

3 ‘‘(II) the proportion of such re4 muneration payable under vesting ar5 rangements must increase based on 

6 the level of seniority or responsibility 

7 of the employee, 

8 ‘‘(III) such remuneration payable 

9 under vesting arrangements must vest 

10 on a basis no faster than pro rata 

11 over the specified number of years of 

12 such arrangement (not to be less than 

13 5), 

14 ‘‘(IV) such remuneration is con15 tingent on a formal agreement be16 tween the taxpayer and the employee 

17 which forbids the use of personal 

18 hedging strategies, remuneration-re19 lated insurance, or liability-related in20 surance which undermines the risk 

21 alignment effects of this paragraph, 

22 ‘‘(V) in the case of an employer 

23 which is a publicly held corporation, 

24 not less than 50 percent of such reVerDate Nov 24 2008 02:11 Mar 23, 2010 Jkt 089200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S3149.IS S3149

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1 muneration must be in the form of 

2 stock in the employer, and 

3 ‘‘(VI) in the case of remuneration 

4 paid to a chief executive officer or 

5 chief financial officer (if such chief fi6 nancial officer is a covered employee) 

7 of a publicly held corporation, such re8 muneration must be subject to sub9 stantial forfeiture requirements in the 

10 event the taxpayer is required to pre11 pare an accounting restatement due to 

12 material noncompliance, as a result of 

13 misconduct, with any financial report14 ing requirement under Federal securi15 ties laws. 

16 For purposes of this clause, the date on 

17 which remuneration is deemed to have 

18 vested is the first date on which such re19 muneration is not subject to a substantial 

20 risk of forfeiture (within the meaning of 

21 section 409A(d)(4)). 

22 ‘‘(D) SPECIAL RULE FOR PERFORMANCE23 BASED COMPENSATION PAID BY NON-PUBLIC

24 ENTITIES.—In the case of a systemically signifi25 cant financial institution which is not a publicly 


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1 held corporation, in addition to the require2 ments of subparagraph (C), paragraph (4)(C) 

3 shall be applied by substituting the following 

4 for clauses (i) through (iii) thereof: 

5 ‘‘(i) the taxpayer commissions an an6 nual, external review of its compensation 

7 policies and practices, including an exam8 ination and analysis of the taxpayer’s com9 pliance with the requirements of this sub10 section, and 

11 ‘‘(ii) the taxpayer obtains certification 

12 from an unrelated third party commis13 sioned to evaluated compensation practices 

14 that performance goals and other material 

15 terms under which the remuneration is to 

16 be paid are satisfied before any payment of 

17 such remuneration is made.’. 

18 For purposes of the preceding sentence, all per19 sons treated as a single employer under sub20 section (a) or (b) of section 52 or subsection (b) 

21 or (c) of section 414 shall be treated as related 

22 taxpayers. 

23 ‘‘(E) COORDINATION WITH RULES FOR EM24 PLOYERS PARTICIPATING IN THE TROUBLED

25 ASSETS RELIEF PROGRAM.—In the case of any 


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1 systemically significant financial institution to 

2 which paragraph (5) applies for any taxable 

3 year, this paragraph shall not apply to any pay4 ment of remuneration to which such paragraph 

5 applies. 

6 ‘‘(F) REGULATORY AUTHORITY.—Not later 

7 than 180 days after the date of the enactment 

8 of this paragraph, the Secretary shall prescribe 

9 such guidance, rules, or regulations of general 

10 applicability as are necessary to carry out the 

11 purposes of this paragraph, including— 

12 ‘‘(i) the method for valuing assets for 

13 purposes of subparagraph (B)(i), 

14 ‘‘(ii) the method for calculating the 

15 ratio described in subparagraph (B)(i)(II), 

16 ‘‘(iii) criteria for use in determining 

17 whether the actions of an employee have a 

18 material impact on the risk exposure of the 

19 taxpayer, and for determining what con20 stitutes a substantial forfeiture require21 ment with respect to executive remunera22 tion, 

23 ‘‘(iv) criteria for determining whether 

24 a remuneration agreement constitutes a 

25 hedging strategy, and 


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1 ‘‘(v) anti-abuse rules to prevent the 

2 avoidance of the purposes of this para3 graph, including by use of independent 

4 contractors. 

5 ‘‘(G) APPLICATION OF PARAGRAPH.—This 

6 paragraph shall apply— 

7 ‘‘(i) in the case of an entity which is 

8 a systemically significant financial institu9 tion in calendar 2010, to remuneration for 

10 services performed in calendar years begin11 ning after 2010, and 

12 ‘‘(ii) in the case of an entity which be13 comes a systemically significant financial 

14 institution in a calender year after 2010, 

15 to remuneration for services performed in 

16 calendar years beginning with the second 

17 calendar year after the year in which such 

18 entity first becomes a systemically signifi19 cant financial institution.’’. 

20 (b) CONFORMING AMENDMENT.—Subparagraph (G) 

21 of section 162(m)(5) of the Internal Revenue Code of 

22 1986 is amended by adding at the end the following: 

23 ‘‘Paragraph (6) shall not apply to any payment of remu24 neration to which this paragraph applies.’’. 


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1 (c) REPORT ON PERFORMANCE-BASED COMPENSA2 TION PAID BY PUBLICLY HELD CORPORATIONS.— 

3 (1) IN GENERAL.—Each systemically significant 

4 financial institution which is a publicly held corpora5 tion shall submit to the Chairman of the Securities 

6 and Exchange Commission, and shall make publicly 

7 available, an annual report on compensation policies 

8 and practices which describes— 

9 (A) the process used to develop and modify 

10 such institution’s compensation policies, includ11 ing the composition and the mandate of such 

12 institution’s compensation committee, 

13 (B) the actions taken by such institution 

14 to comply with section 162(m)(6) of the Inter15 nal Revenue Code of 1986, 

16 (C) any additional actions taken to imple17 ment the Principles for Sound Compensation 

18 Practices adopted by the Financial Stability 

19 Board established by the G–20 Finance Min20 isters and Central Bank Governors, 

21 (D) the most important design characteris22 tics of such institution’s compensation policies, 

23 including criteria used for performance meas24 urement and risk adjustment, the linkage be25 tween pay and performance, vesting policy and 


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1 criteria, and the parameters used for allocating 

2 cash versus other forms of remuneration, 

3 (E) aggregate quantitative information on 

4 remuneration paid by such institution, differen5 tiating between remuneration paid to senior ex6 ecutive officers and to employees whose actions 

7 have a material impact on the risk exposure of 

8 such institution, which indicates the amounts of 

9 remuneration for the financial year (divided 

10 into fixed and variable remuneration) and the 

11 number of employees to which such remunera12 tion was paid, and 

13 (F) the amount of remuneration paid by 

14 such institution during the financial year pre15 ceding the year of the report which was non16 deductible by reason of section 162(m) of such 

17 Code. 

18 (2) TIMING OF REPORT.—The report required 

19 under paragraph (1) shall be submitted beginning in 

20 calendar year 2011 (or, if later, the calendar year 

21 after the year in which an entity first becomes a sys22 temically significant financial institution which is a 

23 publicly held corporation), at such time during such 

24 year and each subsequent year as the Chairman of 


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1 the Securities and Exchange Commission shall speci2 fy. 

3 (3) DEFINITIONS.—Any term used in this sub4 section which is also used in section 162(m)(6) of 

5 the Internal Revenue Code of 1986 shall have the 

6 same meaning as when used in such section. 

7 (d) EFFECTIVE DATE.—The amendments made by 

8 subsections (a) and (b) shall apply to remuneration for 

9 services performed after December 31, 2010. 

Æ 


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