I 

111TH CONGRESS 

1ST SESSION H. R. 3269 

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 

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. 

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 Finan5 cial Institution Compensation Fairness Act of 2009’’. 


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1 SEC. 2. SHAREHOLDER VOTE ON EXECUTIVE COMPENSA2 TION DISCLOSURES. 

3 Section 14 of the Securities Exchange Act of 1934 

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

6 ‘‘(i) ANNUAL SHAREHOLDER APPROVAL OF EXECU7 TIVE COMPENSATION.— 

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

9 authorization for an annual meeting of the share10 holders (or a special meeting in lieu of the annual 

11 meeting) occurring on or after the date that is 6 

12 months after the date on which final rules are issued 

13 under paragraph (3), shall provide for a separate 

14 shareholder vote to approve the compensation of ex15 ecutives as disclosed pursuant to the Commission’s 

16 compensation disclosure rules (which disclosure shall 

17 include the compensation committee report, the com18 pensation discussion and analysis, the compensation 

19 tables, and any related materials). The shareholder 

20 vote shall not be binding on the corporation or the 

21 board of directors and shall not be construed as 

22 overruling a decision by such board, nor to create or 

23 imply any additional fiduciary duty by such board, 

24 nor shall such vote be construed to restrict or limit 

25 the ability of shareholders to make proposals for inVerDate Nov 24 2008 03:37 Jul 22, 2009 Jkt 079200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H3269.IH H3269

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1 clusion in such proxy materials related to executive 

2 compensation. 

3 ‘‘(2) SHAREHOLDER APPROVAL OF GOLDEN

4 PARACHUTE COMPENSATION.— 

5 ‘‘(A) DISCLOSURE.—In any proxy or con6 sent solicitation material for an annual meeting 

7 of the shareholders (or a special meeting in lieu 

8 of the annual meeting) occurring on or after 

9 the date that is 6 months after the date on 

10 which final rules are issued under paragraph 

11 (3), that concerns an acquisition, merger, con12 solidation, or proposed sale or other disposition 

13 of all or substantially all the assets of an issuer, 

14 the person making such solicitation shall dis15 close in the proxy or consent solicitation mate16 rial, in a clear and simple tabular form in ac17 cordance with regulations to be promulgated by 

18 the Commission, any agreements or under19 standings that such person has with any prin20 cipal executive officers of such issuer (or of the 

21 acquiring issuer, if such issuer is not the ac22 quiring issuer) concerning any type of com23 pensation (whether present, deferred, or contin24 gent) that is based on or otherwise relates to 

25 the acquisition, merger, consolidation, sale, or 


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1 other disposition of all or substantially all of 

2 the assets of the issuer that have not been sub3 ject to a shareholder vote under paragraph (1), 

4 and the aggregate total of all such compensa5 tion that may (and the conditions upon which 

6 it may) be paid or become payable to or on be7 half of such executive officer. 

8 ‘‘(B) SHAREHOLDER APPROVAL.—Any 

9 proxy or consent or authorization relating to 

10 the proxy or consent solicitation material con11 taining the disclosure required by subparagraph 

12 (A) shall provide for a separate shareholder 

13 vote to approve such agreements or under14 standings and compensation as disclosed. A 

15 vote by the shareholders shall not be binding on 

16 the corporation or the board of directors of the 

17 issuer or the person making the solicitation and 

18 shall not be construed as overruling a decision 

19 by such board, nor to create or imply any addi20 tional fiduciary duty by such board, nor shall 

21 such vote be construed to restrict or limit the 

22 ability of shareholders to make proposals for in23 clusion in such proxy materials related to execu24 tive compensation. 


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1 ‘‘(3) RULEMAKING.—Not later than 6 months 

2 after the date of the enactment of the Corporate and 

3 Financial Institution Compensation Fairness Act of 

4 2009, the Commission shall issue rules and regula5 tions to implement this subsection.’’. 

6 SEC. 3. COMPENSATION COMMITTEE INDEPENDENCE. 

7 (a) STANDARDS RELATING TO COMPENSATION COM8 MITTEES.—The Securities Exchange Act of 1934 (15 

9 U.S.C. 78f) is amended by inserting after section 10A the 

10 following new section: 

11 ‘‘SEC. 10B. STANDARDS RELATING TO COMPENSATION COM12 MITTEES. 

13 ‘‘(a) COMMISSION RULES.— 

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

15 270 days after the date of enactment of the Cor16 porate and Financial Institution Compensation Fair17 ness Act of 2009, the Commission shall, by rule, di18 rect the national securities exchanges and national 

19 securities associations to prohibit the listing of any 

20 security of an issuer that is not in compliance with 

21 the requirements of any portion of subsections (b) 

22 through (f). 

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

24 rules of the Commission under paragraph (1) shall 

25 provide for appropriate procedures for an issuer to 


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1 have an opportunity to cure any defects that would 

2 be the basis for a prohibition under paragraph (1) 

3 before the imposition of such prohibition. 

4 ‘‘(3) EXEMPTION AUTHORITY.—The Commis5 sion may exempt certain categories of issuers from 

6 the requirements of subsections (b) through (f), 

7 where appropriate in view of the purpose of this sec8 tion. In determining appropriate exemptions, the 

9 Commission shall take into account, among other 

10 considerations, the potential impact on smaller re11 porting issuers. 

12 ‘‘(b) INDEPENDENCE OF COMPENSATION COMMIT13 TEES.— 

14 ‘‘(1) IN GENERAL.—Each member of the com15 pensation committee of the board of directors of the 

16 issuer shall be a member of the board of directors 

17 of the issuer, and shall otherwise be independent. 

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

19 be independent for purposes of this subsection, a 

20 member of a compensation committee of an issuer 

21 may not, other than in his or her capacity as a 

22 member of the compensation committee, the board 

23 of directors, or any other board committee— 

24 ‘‘(A) accept any consulting, advisory, or 

25 other compensatory fee from the issuer; or 


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1 ‘‘(B) be an affiliated person of the issuer 

2 or any subsidiary thereof. 

3 ‘‘(C) EXEMPTIVE AUTHORITY.—The Com4 mission may exempt from the requirements of 

5 paragraph (2) a particular relationship with re6 spect to compensation committee members, 

7 where appropriate in view of the purpose of this 

8 section. 

9 ‘‘(3) DEFINITION.—As used in this section, the 

10 term ‘compensation committee’ means— 

11 ‘‘(A) a committee (or equivalent body) es12 tablished by and amongst the board of directors 

13 of an issuer for the purpose of determining and 

14 approving the compensation arrangements for 

15 the executive officers of the issuer; and 

16 ‘‘(B) if no such committee exists with re17 spect to an issuer, the independent members of 

18 the entire board of directors. 

19 ‘‘(c) INDEPENDENCE STANDARDS FOR COMPENSA20 TION CONSULTANTS AND OTHER COMMITTEE ADVI21 SORS.—Any compensation consultant, legal counsel, or 

22 other adviser to the compensation committee of any issuer 

23 shall meet standards for independence established by the 

24 Commission by regulation. 


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1 ‘‘(d) COMPENSATION COMMITTEE AUTHORITY RE2 LATING TO COMPENSATION CONSULTANTS.— 

3 ‘‘(1) IN GENERAL.—The compensation com4 mittee of each issuer, in its capacity as a committee 

5 of the board of directors, shall have the authority, 

6 in its sole discretion, to retain and obtain the advice 

7 of a compensation consultant meeting the standards 

8 for independence promulgated pursuant to sub9 section (c), and the compensation committee shall be 

10 directly responsible for the appointment, compensa11 tion, and oversight of the work of such independent 

12 compensation consultant. This provision shall not be 

13 construed to require the compensation committee to 

14 implement or act consistently with the advice or rec15 ommendations of the compensation consultant, and 

16 shall not otherwise affect the compensation commit17 tee’s ability or obligation to exercise its own judg18 ment in fulfillment of its duties. 

19 ‘‘(2) DISCLOSURE.—In any proxy or consent 

20 solicitation material for an annual meeting of the 

21 shareholders (or a special meeting in lieu of the an22 nual meeting) occurring on or after the date that is 

23 1 year after the date of enactment of the Corporate 

24 and Financial Institution Compensation Fairness 

25 Act of 2009, each issuer shall disclose in the proxy 


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1 or consent material, in accordance with regulations 

2 to be promulgated by the Commission— 

3 ‘‘(A) whether the compensation committee 

4 of the issuer retained and obtained the advice 

5 of a compensation consultant meeting the 

6 standards for independence promulgated pursu7 ant to subsection (c); and 

8 ‘‘(B) if the compensation committee of the 

9 issuer has not retained and obtained the advice 

10 of a compensation consultant meeting the 

11 standards for independence promulgated pursu12 ant to subsection (c), an explanation of the 

13 basis for the compensation committee’s deter14 mination that the retention of such an inde15 pendent consultant was not in the interests of 

16 shareholders. 

17 ‘‘(e) AUTHORITY TO ENGAGE INDEPENDENT COUN18 SEL AND OTHER ADVISORS.—The compensation com19 mittee of each issuer, in its capacity as a committee of 

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

21 discretion, to retain and obtain the advice of independent 

22 counsel and other advisers meeting the standards for inde23 pendence promulgated pursuant to subsection (c), and the 

24 compensation committee shall be directly responsible for 

25 the appointment, compensation, and oversight of the work 


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1 of such independent counsel and other advisers. This pro2 vision shall not be construed to require the compensation 

3 committee to implement or act consistently with the advice 

4 or recommendations of such independent counsel and 

5 other advisers, and shall not otherwise affect the com6 pensation committee’s ability or obligation to exercise its 

7 own judgment in fulfillment 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 

13 compensation committee that meets the standards 

14 for independence promulgated pursuant to sub15 section (c), and 

16 ‘‘(2) to any independent counsel or other ad17 viser to the compensation committee.’’. 

18 (b) STUDY AND REVIEW REQUIRED.— 

19 (1) IN GENERAL.—The Securities and Ex20 change Commission shall conduct a study and review 

21 of the use of compensation consultants meeting the 

22 standards for independence promulgated pursuant to 

23 section 10B(c) of the Securities Exchange Act of 

24 1934 (as added by subsection (a)), and the effects 

25 of such use. 


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

2 years after the date of enactment of this Act, the 

3 Commission shall submit a report to the Congress 

4 on the results of the study and review required by 

5 this paragraph. 

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

8 (a) ENHANCED DISCLOSURE AND REPORTING OF

9 COMPENSATION ARRANGEMENTS.—Not later than 270 

10 days after the date of enactment of this Act, the appro11 priate Federal regulators jointly shall prescribe regula12 tions to require each covered financial institution to dis13 close to the appropriate Federal regulator the structures 

14 of the incentive-based compensation arrangements for offi15 cers and employees of such institution sufficient to deter16 mine whether the compensation structure— 

17 (1) is aligned with sound risk management; 

18 (2) is structured to account for the time hori19 zon of risks; and 

20 (3) meets such other criteria as the appropriate 

21 Federal regulators jointly may determine to be ap22 propriate to reduce unreasonable incentives for offi23 cers and employees to take undue risks that— 

24 (A) could threaten the safety and sound25 ness of covered financial institutions; or 


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1 (B) could have serious adverse effects on 

2 economic conditions or financial stability. 

3 (b) PROHIBITION ON CERTAIN COMPENSATION

4 STRUCTURES.—Not later than 270 days after the date of 

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

6 described in paragraphs (1), (2), and (3) of subsection (a), 

7 the appropriate Federal regulators shall jointly prescribe 

8 regulations that prohibit any compensation structure or 

9 incentive-based payment arrangement, or any feature of 

10 any such compensation structure or arrangement, that the 

11 regulators determine encourages inappropriate risks by fi12 nancial institutions or officers or employees of covered fi13 nancial institutions that— 

14 (1) could threaten the safety and soundness of 

15 covered financial institutions; or 

16 (2) could have serious adverse effects on eco17 nomic conditions or financial stability. 

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

19 shall be enforced under section 505 of the Gramm-Leach20 Bliley Act and, for purposes of such section, a violation 

21 of this section shall be treated as a violation of subtitle 

22 A of title V of such Act. 

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

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

25 means— 


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1 (A) the Board of Governors of the Federal 

2 Reserve System; 

3 (B) the Office of the Comptroller of the 

4 Currency; 

5 (C) the Board of Directors of the Federal 

6 Deposit Insurance Corporation; 

7 (D) the Director of the Office of Thrift 

8 Supervision; 

9 (E) the National Credit Union Administra10 tion Board; and 

11 (F) the Securities and Exchange Commis12 sion; and 

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

14 means— 

15 (A) a depository institution or depository 

16 institution holding company, as such terms are 

17 defined in section 3 of the Federal Deposit In18 surance Act (12 U.S.C. 1813); 

19 (B) a broker-dealer registered under sec20 tion 15 of the Securities Exchange Act of 1934 

21 (15 U.S.C. 78o); 

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

23 19(b)(1)(A)(iv) of the Federal Reserve Act; 

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

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


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

2 and 

3 (E) any other financial institution that the 

4 appropriate Federal regulators, jointly, by rule, 

5 determine should be treated as a covered finan6 cial institution for purposes of this section. 

Æ 


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