IB 

Union Calendar No. 131 

111TH CONGRESS 

1ST SESSION H. R. 3269 

[Report No. 111–236] 

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. 

IN THE HOUSE OF REPRESENTATIVES 

JULY 21, 2009 

Mr. FRANK of Massachusetts (for himself, Mr. PETERS, Ms. KILROY, Mr. 

WATT, Mr. CAPUANO, Mr. AL GREEN of Texas, Mr. SHERMAN, Mr. CARSON of Indiana, Mr. GUTIERREZ, Mr. ELLISON, and Mr. HINOJOSA) introduced the following bill; which was referred to the Committee on Financial Services 

JULY 30, 2009 

Additional sponsor: Ms. WATERS

JULY 30, 2009 

Reported with an amendment, committed to the Committee of the Whole 

House on the State of the Union, and ordered to be printed 

[Strike out all after the enacting clause and insert the part printed in italic] 

[For text of introduced bill, see copy of bill as introduced on July 21, 2009] 


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A BILL 

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. 


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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 and Financial 

5 Institution Compensation Fairness Act of 2009’’. 

6 SEC. 2. SHAREHOLDER VOTE ON EXECUTIVE COMPENSA7 TION DISCLOSURES. 

8 (a) AMENDMENT.—Section 14 of the Securities Ex9 change Act of 1934 (15 U.S.C. 78n) is amended by adding 

10 at the end the following new subsection: 

11 ‘‘(i) ANNUAL SHAREHOLDER APPROVAL OF EXECU12 TIVE COMPENSATION.— 

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

14 authorization (the solicitation of which is subject to 

15 the rules of the Commission pursuant to subsection 

16 (a)) for an annual meeting of the shareholders to elect 

17 directors (or a special meeting in lieu of such meet18 ing) where proxies are solicited in respect of any secu19 rity registered under section 12 occurring on or after 

20 the date that is 6 months after the date on which 

21 final rules are issued under paragraph (4), shall pro22 vide for a separate shareholder vote to approve the 

23 compensation of executives as disclosed pursuant to 

24 the Commission’s compensation disclosure rules for 

25 named executive officers (which disclosure shall inVerDate Nov 24 2008 21:07 Jul 30, 2009 Jkt 079200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6203 E:\BILLS\H3269.RH H3269

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1 clude the compensation committee report, the com2 pensation discussion and analysis, the compensation 

3 tables, and any related materials, to the extent re4 quired by such rules). The shareholder vote shall not 

5 be binding on the issuer or the board of directors and 

6 shall not be construed as overruling a decision by 

7 such board, nor to create or imply any additional fi8 duciary duty by such board, nor shall such vote be 

9 construed to restrict or limit the ability of share10 holders to make proposals for inclusion in such proxy 

11 materials related to executive compensation. 

12 ‘‘(2) SHAREHOLDER APPROVAL OF GOLDEN

13 PARACHUTE COMPENSATION.— 

14 ‘‘(A) DISCLOSURE.—In any proxy or con15 sent solicitation material (the solicitation of 

16 which is subject to the rules of the Commission 

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

18 shareholders occurring on or after the date that 

19 is 6 months after the date on which final rules 

20 are issued under paragraph (4), at which share21 holders are asked to approve an acquisition, 

22 merger, consolidation, or proposed sale or other 

23 disposition of all or substantially all the assets 

24 of an issuer, the person making such solicitation 

25 shall disclose in the proxy or consent solicitation 


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1 material, in a clear and simple form in accord2 ance with regulations to be promulgated by the 

3 Commission, any agreements or understandings 

4 that such person has with any named executive 

5 officers of such issuer (or of the acquiring issuer, 

6 if such issuer is not the acquiring issuer) con7 cerning any type of compensation (whether 

8 present, deferred, or contingent) that is based on 

9 or otherwise relates to the acquisition, merger, 

10 consolidation, sale, or other disposition of all or 

11 substantially all of the assets of the issuer and 

12 the aggregate total of all such compensation that 

13 may (and the conditions upon which it may) be 

14 paid or become payable to or on behalf of such 

15 executive officer. 

16 ‘‘(B) SHAREHOLDER APPROVAL.—Any 

17 proxy or consent or authorization relating to the 

18 proxy or consent solicitation material containing 

19 the disclosure required by subparagraph (A) 

20 shall provide for a separate shareholder vote to 

21 approve such agreements or understandings and 

22 compensation as disclosed, unless such agree23 ments or understandings have been subject to a 

24 shareholder vote under paragraph (1). A vote by 

25 the shareholders shall not be binding on the 


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1 issuer or the board of directors of the issuer or 

2 the person making the solicitation and shall not 

3 be construed as overruling a decision by any 

4 such person or issuer, nor to create or imply any 

5 additional fiduciary duty by any such person or 

6 issuer. 

7 ‘‘(3) DISCLOSURE OF VOTES.—Every institu8 tional investment manager subject to section 13(f) 

9 shall report at least annually how it voted on any 

10 shareholder vote pursuant to paragraphs (1) or (2) of 

11 this section, unless such vote is otherwise required to 

12 be reported publicly by rule or regulation of the Com13 mission. 

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

15 after the date of the enactment of the Corporate and 

16 Financial Institution Compensation Fairness Act of 

17 2009, the Commission shall issue final rules to imple18 ment this subsection. 

19 ‘‘(5) EXEMPTION AUTHORITY.—The Commission 

20 may exempt certain categories of issuers from the re21 quirements of this subsection, where appropriate in 

22 view of the purpose of this subsection. In determining 

23 appropriate exemptions, the Commission shall take 

24 into account, among other considerations, the poten25 tial impact on smaller reporting issuers.’’. 


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1 (b) PROHIBITION ON CLAWBACKS.— 

2 (1) PROHIBITION.—No compensation of any ex3 ecutive of an issuer, having been approved by a ma4 jority of shareholders pursuant to section 14(i) of the 

5 Securities Exchange Act of 1934 (as added by sub6 section (a)), may be subject to any clawback except— 

7 (A) in accordance with any contract of such 

8 executive providing for such a clawback; or 

9 (B) in the case of fraud on the part of such 

10 executive, to the extent provided by Federal or 

11 State law. 

12 (2) REGULATIONS.—The Securities and Ex13 change Commission shall promulgate rules necessary 

14 to implement and enforce paragraph (1). 

15 SEC. 3. COMPENSATION COMMITTEE INDEPENDENCE. 

16 (a) STANDARDS RELATING TO COMPENSATION COM17 MITTEES.—The Securities Exchange Act of 1934 (15 U.S.C. 

18 78a et seq.) is amended by inserting after section 10A the 

19 following new section: 

20 ‘‘SEC. 10B. STANDARDS RELATING TO COMPENSATION COM21 MITTEES. 

22 ‘‘(a) COMMISSION RULES.— 

23 ‘‘(1) IN GENERAL.—Effective not later than 9 

24 months after the date of enactment of the Corporate 

25 and Financial Institution Compensation Fairness Act 


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1 of 2009, the Commission shall, by rule, direct the na2 tional securities exchanges and national securities as3 sociations to prohibit the listing of any class of equity 

4 security of an issuer that is not in compliance with 

5 the requirements of any portion of subsections (b) 

6 through (f). 

7 ‘‘(2) OPPORTUNITY TO CURE DEFECTS.—The 

8 rules of the Commission under paragraph (1) shall 

9 provide for appropriate procedures for an issuer to 

10 have an opportunity to cure any defects that would 

11 be the basis for a prohibition under paragraph (1) be12 fore the imposition of such prohibition. 

13 ‘‘(3) EXEMPTION AUTHORITY.—The Commission 

14 may exempt certain categories of issuers from the re15 quirements of subsections (b) through (f), where ap16 propriate in view of the purpose of this section. In de17 termining appropriate exemptions, the Commission 

18 shall take into account, among other considerations, 

19 the potential impact on smaller reporting issuers. 

20 ‘‘(b) INDEPENDENCE OF COMPENSATION COMMIT21 TEES.— 

22 ‘‘(1) IN GENERAL.—Each member of the com23 pensation committee of the board of directors of the 

24 issuer shall be independent. 


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1 ‘‘(2) CRITERIA.—In order to be considered to be 

2 independent for purposes of this subsection, a member 

3 of a compensation committee of an issuer may not, 

4 other than in his or her capacity as a member of the 

5 compensation committee, the board of directors, or 

6 any other board committee accept any consulting, ad7 visory, or other compensatory fee from the issuer. 

8 ‘‘(3) EXEMPTION AUTHORITY.—The Commission 

9 may exempt from the requirements of paragraph (2) 

10 a particular relationship with respect to compensa11 tion committee members, where appropriate in view 

12 of the purpose of this section. 

13 ‘‘(4) DEFINITION.—As used in this section, the 

14 term ‘compensation committee’ means— 

15 ‘‘(A) a committee (or equivalent body) es16 tablished by and amongst the board of directors 

17 of an issuer for the purpose of determining and 

18 approving the compensation arrangements for 

19 the executive officers of the issuer; and 

20 ‘‘(B) if no such committee exists with re21 spect to an issuer, the independent members of 

22 the entire board of directors. 

23 ‘‘(c) INDEPENDENCE STANDARDS FOR COMPENSATION

24 CONSULTANTS AND OTHER COMMITTEE ADVISORS.—Any 

25 compensation consultant or other similar adviser to the 


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1 compensation committee of any issuer shall meet standards 

2 for independence established by the Commission by regula3 tion. 

4 ‘‘(d) COMPENSATION COMMITTEE AUTHORITY RELAT5 ING TO COMPENSATION CONSULTANTS.— 

6 ‘‘(1) IN GENERAL.—The compensation committee 

7 of each issuer, in its capacity as a committee of the 

8 board of directors, shall have the authority, in its sole 

9 discretion, to retain and obtain the advice of a com10 pensation consultant meeting the standards for inde11 pendence promulgated pursuant to subsection (c), and 

12 the compensation committee shall be directly respon13 sible for the appointment, compensation, and over14 sight of the work of such independent compensation 

15 consultant. This provision shall not be construed to 

16 require the compensation committee to implement or 

17 act consistently with the advice or recommendations 

18 of the compensation consultant, and shall not other19 wise affect the compensation committee’s ability or 

20 obligation to exercise its own judgment in fulfillment 

21 of its duties. 

22 ‘‘(2) DISCLOSURE.—In any proxy or consent so23 licitation material for an annual meeting of the 

24 shareholders (or a special meeting in lieu of the an25 nual meeting) occurring on or after the date that is 


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1 1 year after the date of enactment of the Corporate 

2 and Financial Institution Compensation Fairness Act 

3 of 2009, each issuer shall disclose in the proxy or con4 sent material, in accordance with regulations to be 

5 promulgated by the Commission whether the com6 pensation committee of the issuer retained and ob7 tained the advice of a compensation consultant meet8 ing the standards for independence promulgated pur9 suant to subsection (c). 

10 ‘‘(3) REGULATIONS.—In promulgating regula11 tions under this subsection or any other provision of 

12 law with respect to compensation consultants, the 

13 Commission shall ensure that such regulations are 

14 competitively neutral among categories of consultants 

15 and preserve the ability of compensation committees 

16 to retain the services of members of any such category. 

17 ‘‘(e) AUTHORITY TO ENGAGE INDEPENDENT COUNSEL

18 AND OTHER ADVISORS.—The compensation committee of 

19 each issuer, in its capacity as a committee of the board of 

20 directors, shall have the authority, in its sole discretion, to 

21 retain and obtain the advice of independent counsel and 

22 other advisers meeting the standards for independence pro23 mulgated pursuant to subsection (c), and the compensation 

24 committee shall be directly responsible for the appointment, 

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1 pendent counsel and other advisers. This provision shall not 

2 be construed to require the compensation committee to im3 plement or act consistently with the advice or recommenda4 tions of such independent counsel and other advisers, and 

5 shall not otherwise affect the compensation committee’s abil6 ity or obligation to exercise its own judgment in fulfillment 

7 of its duties. 

8 ‘‘(f) FUNDING.—Each issuer shall provide for appro9 priate funding, as determined by the compensation com10 mittee, in its capacity as a committee of the board of direc11 tors, for payment of compensation— 

12 ‘‘(1) to any compensation consultant to the com13 pensation committee that meets the standards for 

14 independence promulgated pursuant to subsection (c), 

15 and 

16 ‘‘(2) to any independent counsel or other adviser 

17 to the compensation committee.’’. 

18 (b) STUDY AND REVIEW REQUIRED.— 

19 (1) IN GENERAL.—The Securities and Exchange 

20 Commission shall conduct a study and review of the 

21 use of compensation consultants meeting the stand22 ards for independence promulgated pursuant to sec23 tion 10B(c) of the Securities Exchange Act of 1934 

24 (as added by subsection (a)), and the effects of such 

25 use. 


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1 (2) REPORT TO CONGRESS.—Not later than 2 

2 years after the rules required by the amendment made 

3 by this section take effect, the Commission shall sub4 mit a report to the Congress on the results of the 

5 study and review required by this paragraph. 

6 SEC. 4. ENHANCED COMPENSATION STRUCTURE REPORT7 ING TO REDUCE PERVERSE INCENTIVES. 

8 (a) ENHANCED DISCLOSURE AND REPORTING OF COM9 PENSATION ARRANGEMENTS.— 

10 (1) IN GENERAL.—Not later than 9 months after 

11 the date of enactment of this Act, the appropriate 

12 Federal regulators jointly shall prescribe regulations 

13 to require each covered financial institution to dis14 close to the appropriate Federal regulator the struc15 tures of all incentive-based compensation arrange16 ments offered by such covered financial institutions 

17 sufficient to determine whether the compensation 

18 structure— 

19 (A) is aligned with sound risk management; 

20 (B) is structured to account for the time ho21 rizon of risks; and 

22 (C) meets such other criteria as the appro23 priate Federal regulators jointly may determine 

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1 tives offered by such institutions for employees to 

2 take undue risks that— 

3 (i) could threaten the safety and 

4 soundness of covered financial institutions; 

5 or 

6 (ii) could have serious adverse effects 

7 on economic conditions or financial sta8 bility. 

9 (2) RULES OF CONSTRUCTION.—Nothing in this 

10 subsection shall be construed as requiring the report11 ing of the actual compensation of particular individ12 uals. Nothing in this subsection shall be construed to 

13 require a covered financial institution that does not 

14 have an incentive-based payment arrangement to 

15 make the disclosures required under this subsection. 

16 (b) PROHIBITION ON CERTAIN COMPENSATION AR17 RANGEMENTS.—Not later than 9 months after the date of 

18 enactment of this Act, and taking into account the factors 

19 described in subparagraphs (A), (B), and (C) of subsection 

20 (a)(1), the appropriate Federal regulators shall jointly pre21 scribe regulations that prohibit any incentive-based pay22 ment arrangement, or any feature of any such arrangement, 

23 that the regulators determine encourages inappropriate 

24 risks by covered financial institutions that— 


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1 (1) could threaten the safety and soundness of 

2 covered financial institutions; or 

3 (2) could have serious adverse effects on economic 

4 conditions or financial stability. 

5 (c) ENFORCEMENT.—The provisions of this section 

6 shall be enforced under section 505 of the Gramm-Leach7 Bliley Act and, for purposes of such section, a violation of 

8 this section shall be treated as a violation of subtitle A of 

9 title V of such Act. 

10 (d) DEFINITIONS.—As used in this section— 

11 (1) the term ‘‘appropriate Federal regulator’’ 

12 means— 

13 (A) the Board of Governors of the Federal 

14 Reserve System; 

15 (B) the Office of the Comptroller of the Cur16 rency; 

17 (C) the Board of Directors of the Federal 

18 Deposit Insurance Corporation; 

19 (D) the Director of the Office of Thrift Su20 pervision; 

21 (E) the National Credit Union Administra22 tion Board; 

23 (F) the Securities and Exchange Commis24 sion; and 


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1 (G) the Federal Housing Finance Agency; 

2 and 

3 (2) the term ‘‘covered financial institution’’ 

4 means— 

5 (A) a depository institution or depository 

6 institution holding company, as such terms are 

7 defined in section 3 of the Federal Deposit Insur8 ance Act (12 U.S.C. 1813); 

9 (B) a broker-dealer registered under section 

10 15 of the Securities Exchange Act of 1934 (15 

11 U.S.C. 78o); 

12 (C) a credit union, as described in section 

13 19(b)(1)(A)(iv) of the Federal Reserve Act; 

14 (D) an investment advisor, as such term is 

15 defined in section 202(a)(11) of the Investment 

16 Advisers Act of 1940 (15 U.S.C. 80b–2(a)(11)); 

17 (E) the Federal National Mortgage Associa18 tion; 

19 (F) the Federal Home Loan Mortgage Cor20 poration; and 

21 (G) any other financial institution that the 

22 appropriate Federal regulators, jointly, by rule, 

23 determine should be treated as a covered finan24 cial institution for purposes of this section. 


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1 (e) EXEMPTION FOR CERTAIN FINANCIAL INSTITU2 TIONS.—The requirements of this section shall not apply 

3 to covered financial institutions with assets of less than 

4 $1,000,000,000. 

5 (f) GAO STUDY.— 

6 (1) STUDY REQUIRED.— 

7 (A) IN GENERAL.—The Comptroller General 

8 of the United States shall carry out a study to 

9 determine whether there is a correlation between 

10 compensation structures and excessive risk tak11 ing. 

12 (B) FACTORS TO CONSIDER.—In carrying 

13 out the study required under subparagraph (A), 

14 the Comptroller General shall— 

15 (i) consider compensation structures 

16 used by companies from 2000 to 2008; and 

17 (ii) compare companies that failed, or 

18 nearly failed but for government assistance, 

19 to companies that remained viable through20 out the housing and credit market crisis of 

21 2007 and 2008, including the compensation 

22 practices of all such companies. 

23 (C) DETERMINING COMPANIES THAT FAILED

24 OR NEARLY FAILED.—In determining whether a 

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1 ment assistance, for purposes of subparagraph 

2 (B)(ii), the Comptroller General shall focus on— 

3 (i) companies that received exceptional 

4 assistance under the Troubled Asset Relief 

5 Program under title I of the Emergency 

6 Economic Stabilization Act of 2009 (12 

7 U.S.C. 5211 et seq.) or other forms of sig8 nificant government assistance, including 

9 under the Automotive Industry Financing 

10 Program, the Targeted Investment Program, 

11 the Asset Guarantee Program, and the Sys12 temically Significant Failing Institutions 

13 Program; 

14 (ii) the Federal National Mortgage As15 sociation; 

16 (iii) the Federal Home Loan Mortgage 

17 Corporation; and 

18 (iv) companies that participated in the 

19 Security and Exchange Commission’s Con20 solidated Supervised Entities Program as of 

21 January 2008. 

22 (2) REPORT.—Not later than the end of the 1- 

23 year period beginning on the date of the enactment of 

24 this Act, the Comptroller General shall issue a report 


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1 to the Congress containing the results of the study re2 quired under paragraph (1). 


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Union Calendar No. 131 

111TH CONGRESS 

1ST SESSION H. R. 3269 

[Report No. 111–236] 

A BILL 

To amend the Securities Exchange Act of 1934 to 

cial institutions. centives in the compensation practices of finanecutive compensation and to prevent perverse inprovide shareholders with an advisory vote on exJULY 30, 2009 

Reported with an amendment, committed to the Comand ordered to be printed mittee of the Whole House on the State of the Union, 


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