I 

111TH CONGRESS 

1ST SESSION H. R. 2861 

To amend the Securities Exchange Act of 1934 to provide for rules and 

standards relating to the election of boards of directors and certain 

requirements relating to compensation of executives. 

IN THE HOUSE OF REPRESENTATIVES 

JUNE 12, 2009 

Mr. PETERS (for himself, Ms. WATERS, Mr. DINGELL, Mr. WELCH, Mr. 

HOLT, Mr. DEFAZIO, and Mr. CAPUANO) introduced the following bill; 

which was referred to the Committee on Financial Services 

A BILL 

To amend the Securities Exchange Act of 1934 to provide 

for rules and standards relating to the election of boards 

of directors and certain requirements relating to compensation of executives. 

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 ‘‘Shareholder Empower5 ment Act of 2009’’. 

6 SEC. 2. MAJORITY VOTING FOR DIRECTORS. 

7 The Securities Exchange Act of 1934 is amended by 

8 adding after section 16 the following new section: 


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1 ‘‘SEC. 16A. ELECTION OF DIRECTORS. 

2 ‘‘(a) STANDARDS RELATING TO ELECTION OF DI3 RECTORS.— 

4 ‘‘(1) COMMISSION RULES.—Not later than 270 

5 days after the date of enactment of this section, the 

6 Commission shall, by rule, direct the national securi7 ties exchanges and national securities associations 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 paragraph (2). Such rules shall provide 

11 for appropriate procedures for an issuer to have an 

12 opportunity to cure any defects that would be the 

13 basis for such a prohibition before the imposition of 

14 such prohibition. 

15 ‘‘(2) STANDARDS FOR ELECTION OF DIREC16 TORS.— 

17 ‘‘(A) MAJORITY VOTING.—Each issuer 

18 shall, to the extent permitted under State law, 

19 provide in its governing documents that— 

20 ‘‘(i) directors in uncontested elections 

21 shall be elected by a majority of the votes 

22 cast as to each nominee; and 

23 ‘‘(ii) in contested elections where the 

24 number of nominees exceeds the number of 

25 directors to be elected, directors shall be 

26 elected by the vote of a plurality of the 


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1 shares represented at any meeting and en2 titled to vote on the election of directors. 

3 ‘‘(B) RESIGNATION POLICY.—Each issuer 

4 shall also, to the extent permitted under State 

5 law, adopt procedures under which any director 

6 who is not elected to a new term shall offer to 

7 tender his or her resignation to the board of di8 rectors. The board of directors, with the advice 

9 of a committee of the board if such a committee 

10 has been established for that purpose, shall de11 termine what action should be taken as to that 

12 resignation and shall publicly disclose its deci13 sion and the rationale for that decision within 

14 a reasonable period after certification of the 

15 election results. 

16 ‘‘(b) SHAREHOLDER ACCESS TO THE PROXY IN DI17 RECTOR ELECTIONS.— 

18 ‘‘(1) RULE.—Not later than 270 days after the 

19 date of enactment of this section, the Commission 

20 shall, by rule, require that in proxy statements and 

21 proxies, authorizations or consents prepared by an 

22 issuer pursuant to section 14, the issuer shall iden23 tify and provide security holders with an opportunity 

24 to vote on candidates for the board of directors who 

25 have been nominated by holders in the aggregate at 


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1 least 1 percent of the issuer’s voting securities for 

2 at least 2 years prior to a record date established by 

3 the issuer for a meeting of security holders. 

4 ‘‘(2) APPLICATION.—This rule shall specify the 

5 information to be provided to an issuer by security 

6 holders who nominate candidates for inclusion in an 

7 issuer’s proxy materials under this section and shall 

8 require the issuer to disclose information about such 

9 candidates in the issuer’s proxy materials to the 

10 same extent that information must be disclosed 

11 about candidates nominated by the issuer. This rule 

12 shall apply only when eligible security holders have 

13 nominated fewer than a majority of the number of 

14 directors then authorized to serve on the board of di15 rectors, and the rule shall specify procedures to be 

16 followed if different security holders nominate can17 didates sufficient to constitute a majority of the 

18 board of directors. 

19 ‘‘(3) EFFECTIVE DATE.—The rule shall apply 

20 to proxy voting for meetings of security holders held 

21 on or after January 1, 2010, except to the extent 

22 that a meeting was originally scheduled to be held 

23 in 2009, but was adjourned to 2010. 

24 ‘‘(c) BROKER DISCRETIONARY VOTING IN

25 UNCONTESTED DIRECTOR ELECTIONS.—Not later than 


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1 270 days after the date of enactment of this section, the 

2 Commission shall by, rule, require that a broker shall not 

3 be allowed to vote securities on an uncontested election 

4 to the board of directors of an issuer to the extent that 

5 the beneficial owner of those securities has not provided 

6 specific instructions to the broker. The rule shall apply 

7 to proxy voting for meetings of security holders held on 

8 or after January 1, 2010, except to the extent that a meet9 ing was originally scheduled to be held in 2009, but was 

10 adjourned to 2010. 

11 ‘‘(d) INDEPENDENT CHAIRMAN OF THE BOARD OF

12 DIRECTORS.— 

13 ‘‘(1) COMMISSION RULES.—Not later than 270 

14 days after the date of enactment of this section, the 

15 Commission shall, by rule, direct the national securi16 ties exchanges and national securities associations to 

17 prohibit the listing of any security of an issuer that 

18 is not in compliance with the requirements of any 

19 portion of paragraph (2). Such rules shall provide 

20 for appropriate procedures for an issuer to have an 

21 opportunity to cure any defects that would be the 

22 basis for such a prohibition before the imposition of 

23 such prohibition. 

24 ‘‘(2) INDEPENDENT CHAIRMAN OF THE BOARD

25 OF DIRECTORS.—Each issuer shall provide in its 


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1 governing documents or a public statement of cor2 porate policy that, to the extent possible and con3 sistent with the issuer’s status as a publicly traded 

4 company, the chairman of the board of directors 

5 shall be an independent director who has not pre6 viously served as an executive officer of the issuer. 

7 Such rule shall be implemented with due regard for 

8 contracts in existence on the date of enactment of 

9 this section. For purposes of this subsection, an 

10 ‘independent director’ shall be one who during the 

11 preceding 5 years has not been— 

12 ‘‘(A) employed by the issuer in an execu13 tive capacity; 

14 ‘‘(B) an employee, director or owner great15 er than 20 percent of the beneficial shares of a 

16 firm that is a paid adviser or consultant to the 

17 issuer; 

18 ‘‘(C) employed by a significant customer or 

19 supplier of the issuer; 

20 ‘‘(D) a party to a personal services con21 tract with the issuer, as well as with the 

22 issuer’s Chair, chief executive officer, or other 

23 senior executive officer; 

24 ‘‘(E) an employee, officer or director of a 

25 foundation, university or other non-profit orgaVerDate Nov 24 2008 04:20 Jun 13, 2009 Jkt 079200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H2861.IH H2861

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1 nization that receives the greater of $100,000 

2 or 1 percent of total annual donations from the 

3 issuer; 

4 ‘‘(F) a relative of an executive of the 

5 issuer; 

6 ‘‘(G) part of an interlocking directorate in 

7 which the issuer’s chief executive officer or an8 other executive serves on the board of another 

9 issuer employing that director; and 

10 ‘‘(H) engaged in any other relationship 

11 with the issuer or senior executives that the 

12 Commission determines would not render that 

13 director an independent director.’’. 

14 SEC. 3. EXECUTIVE COMPENSATION REQUIREMENTS. 

15 The Securities Exchange Act of 1934 is further 

16 amended by adding after the section 16A, as added by 

17 section 2, the following new section 

18 ‘‘SEC. 16B. EXECUTIVE COMPENSATION REQUIREMENTS. 

19 ‘‘(a) SHAREHOLDER APPROVAL OF EXECUTIVE COM20 PENSATION.— 

21 ‘‘(1) ANNUAL SHAREHOLDER VOTE ON EXECU22 TIVE COMPENSATION.—Any proxy or consent or au23 thorization for an annual or other meeting of an 

24 issuer shall permit a separate vote by shareholders 

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1 cers, as disclosed pursuant to the compensation dis2 closure rules of the Commission (which disclosure 

3 shall include the compensation discussion and anal4 ysis, the compensation tables, and any related mate5 rial). 

6 ‘‘(2) NON-BINDING NATURE OF VOTE.—A 

7 shareholder vote described in paragraph (1) shall not 

8 be binding on the board of directors of an issuer and 

9 may not be construed as overruling a decision by 

10 such board, nor to create or imply any additional fi11 duciary duty by such board, nor shall such vote be 

12 construed to restrict or limit the ability of security 

13 holders to make proposals for inclusion in proxy ma14 terials related to executive compensation. 

15 ‘‘(3) DEADLINE FOR RULES.—Not later than 1 

16 year after the date of enactment of this section, the 

17 Commission shall issue any final rules and regula18 tions required by this section. 

19 ‘‘(4) EXCEPTION.—This provision shall not 

20 apply to any issuer who is subject to a similar 

21 recoupment requirement under another provision of 

22 Federal law. 

23 ‘‘(b) INDEPENDENT COMPENSATION ADVISERS.— 

24 ‘‘(1) REQUIREMENT.—Not later than 1 year 

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1 mission shall, by rule, require that if an issuer’s 

2 board of directors or a committee thereof retains an 

3 individual adviser or advisory firm in conjunction 

4 with negotiating employment contracts or compensa5 tion agreements with the issuer’s executives, the in6 dividual adviser and his or her firm shall be inde7 pendent of the issuer, its executives and directors, 

8 and shall report solely to the board of directors or 

9 the committee thereof responsible for executive com10 pensation. The rule shall further require that issuers 

11 shall not agree to indemnify or limit the liability of 

12 compensation advisers or advisory firms. 

13 ‘‘(2) DETERMINATION.—In determining the ex14 tent to which an adviser or advisory firm is inde15 pendent of an issuer within the meaning of this sec16 tion, the Commission shall consider such matters 

17 as— 

18 ‘‘(A) the extent (as measured by annual 

19 fees and other relevant metrics) to which an in20 dividual adviser or advisory firm provides serv21 ices in conjunction with negotiating employment 

22 contracts or compensation agreements with the 

23 issuer’s executives, as compared to other serv24 ices that the adviser or advisory firm provides 

25 to the issuer or executives; 


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1 ‘‘(B) whether individual advisers are per2 mitted to hold equity and do hold equity in the 

3 issuer; and 

4 ‘‘(C) whether an advisory firm’s incentive 

5 compensation plan links the compensation of in6 dividual advisers to the advisory firm’s provi7 sion of other services to the issuer. 

8 ‘‘(c) CLAWBACKS OF UNEARNED PERFORMANCE9 BASED PAY.— 

10 ‘‘(1) COMMISSION RULES.—Not later than 270 

11 days after the date of enactment of this section, the 

12 Commission shall, by rule, direct the national securi13 ties exchanges and national securities associations to 

14 prohibit the listing of any security of an issuer that 

15 is not in compliance with the requirements of any 

16 portion of paragraph (2). Such rules shall provide 

17 for appropriate procedures for an issuer to have an 

18 opportunity to cure any defects that would be the 

19 basis for such a prohibition before the imposition of 

20 such prohibition. 

21 ‘‘(2) RECOUPMENT OF UNEARNED COMPENSA22 TION.—An issuer’s board of directors or a committee 

23 thereof shall develop and disclose a policy for review24 ing unearned bonus payments, incentive payments, 

25 or equity payments that were awarded to executive 


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1 officers owing to fraud, financial results that require 

2 restatement, or some other cause. The policy should 

3 require recovery or cancellation of any unearned 

4 payments to the extent that it is feasible and prac5 tical to do so. 

6 ‘‘(3) EXCEPTION.—This provision shall not 

7 apply to any issuer who is subject to a similar 

8 recoupment requirement under another provision of 

9 Federal law. 

10 ‘‘(d) SEVERANCE AGREEMENTS TIED TO PERFORM11 ANCE.— 

12 ‘‘(1) COMMISSION RULES.—Not later than 270 

13 days after the date of enactment of this section, the 

14 Commission shall, by rule, direct the national securi15 ties exchanges and national securities associations to 

16 prohibit the listing of any security of an issuer that 

17 is not in compliance with the requirements of any 

18 portion of paragraph (2). Such rules shall provide 

19 for appropriate procedures for an issuer to have an 

20 opportunity to cure any defects that would be the 

21 basis for such a prohibition before the imposition of 

22 such prohibition. 

23 ‘‘(2) SEVERANCE AGREEMENTS TIED TO PER24 FORMANCE.—An issuer’s board of directors or a 

25 committee thereof shall not enter into agreements 


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1 providing for severance payments to a senior execu2 tive officer who is terminated because of poor per3 formance as an executive, as determined by the 

4 board of directors. To the extent that an issuer is 

5 able to terminate a senior executive officer for cause, 

6 poor performance by the executive, as determined by 

7 the board of directors, shall be considered as one 

8 such cause. The rule shall be implemented with due 

9 regard for contracts in existence on the date of en10 actment of this section. 

11 ‘‘(e) IMPROVED DISCLOSURE OF COMPENSATION

12 TARGETS.—Not later than 1 year after the date of enact13 ment of this section, the Commission shall, by rule, require 

14 additional disclosure of specific performance targets that 

15 are used by issuers to determine a senior executive offi16 cer’s eligibility for bonuses, equity and incentive com17 pensation. The Commission shall consider methods to im18 prove disclosure in situations when it is claimed that dis19 closure would result in competitive harm to the issuer, in20 cluding, requirements that the issuer describe its past ex21 perience with similar target levels, disclose any inconsist22 encies between compensation targets and targets set in 

23 other contexts, submit a request for confidential treatment 

24 of the performance targets under Commission rules, or 


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1 disclose the data after disclosure would no longer be con2 sidered competitively harmful.’’. 

Æ 


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