`[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3269 Reported in House (RH)]

                                                 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]





_______________________________________________________________________

                                 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.


 


    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 and Financial Institution 
Compensation Fairness Act of 2009''.

SEC. 2. SHAREHOLDER VOTE ON EXECUTIVE COMPENSATION DISCLOSURES.

    (a) Amendment.--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 paragraphs (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 the enactment of the Corporate and Financial Institution 
        Compensation Fairness Act of 2009, the Commission shall issue 
        final rules to implement this subsection.
            ``(5) Exemption authority.--The Commission may exempt 
        certain categories of issuers from the requirements of this 
        subsection, where appropriate in view of the purpose of this 
        subsection. In determining appropriate exemptions, the 
        Commission shall take into account, among other considerations, 
        the potential impact on smaller reporting issuers.''.
    (b) Prohibition on Clawbacks.--
            (1) Prohibition.--No compensation of any executive of an 
        issuer, having been approved by a majority of shareholders 
        pursuant to section 14(i) of the Securities Exchange Act of 
        1934 (as added by subsection (a)), may be subject to any 
        clawback except--
                    (A) in accordance with any contract of such 
                executive providing for such a clawback; or
                    (B) in the case of fraud on the part of such 
                executive, to the extent provided by Federal or State 
                law.
            (2) Regulations.--The Securities and Exchange Commission 
        shall promulgate rules necessary to implement and enforce 
        paragraph (1).

SEC. 3. COMPENSATION COMMITTEE INDEPENDENCE.

    (a) Standards Relating to Compensation Committees.--The Securities 
Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended by inserting 
after section 10A the following new section:

``SEC. 10B. STANDARDS RELATING TO COMPENSATION COMMITTEES.

    ``(a) Commission Rules.--
            ``(1) In general.--Effective not later than 9 months after 
        the date of enactment of the Corporate and Financial 
        Institution Compensation Fairness Act of 2009, the Commission 
        shall, by rule, direct the national securities exchanges and 
        national securities associations to prohibit the listing of any 
        class of equity security of an issuer that is not in compliance 
        with the requirements of any portion of subsections (b) through 
        (f).
            ``(2) Opportunity to cure defects.--The rules of the 
        Commission 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 a prohibition under 
        paragraph (1) before the imposition of such prohibition.
            ``(3) Exemption authority.--The Commission may exempt 
        certain categories of issuers from the requirements of 
        subsections (b) through (f), where appropriate in view of the 
        purpose of this section. In determining appropriate exemptions, 
        the Commission shall take into account, among other 
        considerations, the potential impact on smaller reporting 
        issuers.
    ``(b) Independence of Compensation Committees.--
            ``(1) In general.--Each member of the compensation 
        committee of the board of directors of the issuer shall be 
        independent.
            ``(2) Criteria.--In order to be considered to be 
        independent for purposes of this subsection, a member of a 
        compensation committee of an issuer may not, other than in his 
        or her capacity as a member of the compensation committee, the 
        board of directors, or any other board committee accept any 
        consulting, advisory, or other compensatory fee from the 
        issuer.
            ``(3) Exemption authority.--The Commission may exempt from 
        the requirements of paragraph (2) a particular relationship 
        with respect to compensation committee members, where 
        appropriate in view of the purpose of this section.
            ``(4) Definition.--As used in this section, the term 
        `compensation committee' means--
                    ``(A) a committee (or equivalent body) established 
                by and amongst the board of directors of an issuer for 
                the purpose of determining and approving the 
                compensation arrangements for the executive officers of 
                the issuer; and
                    ``(B) if no such committee exists with respect to 
                an issuer, the independent members of the entire board 
                of directors.
    ``(c) Independence Standards for Compensation Consultants and Other 
Committee Advisors.--Any compensation consultant or other similar 
adviser to the compensation committee of any issuer shall meet 
standards for independence established by the Commission by regulation.
    ``(d) Compensation Committee Authority Relating to Compensation 
Consultants.--
            ``(1) In general.--The compensation committee of each 
        issuer, in its capacity as a committee of the board of 
        directors, shall have the authority, in its sole discretion, to 
        retain and obtain the advice of a compensation consultant 
        meeting the standards for independence promulgated pursuant to 
        subsection (c), and the compensation committee shall be 
        directly responsible for the appointment, compensation, and 
        oversight of the work of such independent compensation 
        consultant. This provision shall not be construed to require 
        the compensation committee to implement or act consistently 
        with the advice or recommendations of the compensation 
        consultant, and shall not otherwise affect the compensation 
        committee's ability or obligation to exercise its own judgment 
        in fulfillment of its duties.
            ``(2) Disclosure.--In any proxy or consent solicitation 
        material for an annual meeting of the shareholders (or a 
        special meeting in lieu of the annual meeting) occurring on or 
        after the date that is 1 year after the date of enactment of 
        the Corporate and Financial Institution Compensation Fairness 
        Act of 2009, each issuer shall disclose in the proxy or consent 
        material, in accordance with regulations to be promulgated by 
        the Commission whether the compensation committee of the issuer 
        retained and obtained the advice of a compensation consultant 
        meeting the standards for independence promulgated pursuant to 
        subsection (c).
            ``(3) Regulations.--In promulgating regulations under this 
        subsection or any other provision of law with respect to 
        compensation consultants, the Commission shall ensure that such 
        regulations are competitively neutral among categories of 
        consultants and preserve the ability of compensation committees 
        to retain the services of members of any such category.
    ``(e) Authority To Engage Independent Counsel and Other Advisors.--
The compensation committee of each issuer, in its capacity as a 
committee of the board of directors, shall have the authority, in its 
sole discretion, to retain and obtain the advice of independent counsel 
and other advisers meeting the standards for independence promulgated 
pursuant to subsection (c), and the compensation committee shall be 
directly responsible for the appointment, compensation, and oversight 
of the work of such independent counsel and other advisers. This 
provision shall not be construed to require the compensation committee 
to implement or act consistently with the advice or recommendations of 
such independent counsel and other advisers, and shall not otherwise 
affect the compensation committee's ability or obligation to exercise 
its own judgment in fulfillment of its duties.
    ``(f) Funding.--Each issuer shall provide for appropriate funding, 
as determined by the compensation committee, in its capacity as a 
committee of the board of directors, for payment of compensation--
            ``(1) to any compensation consultant to the compensation 
        committee that meets the standards for independence promulgated 
        pursuant to subsection (c), and
            ``(2) to any independent counsel or other adviser to the 
        compensation committee.''.
    (b) Study and Review Required.--
            (1) In general.--The Securities and Exchange Commission 
        shall conduct a study and review of the use of compensation 
        consultants meeting the standards for independence promulgated 
        pursuant to section 10B(c) of the Securities Exchange Act of 
        1934 (as added by subsection (a)), and the effects of such use.
            (2) Report to congress.--Not later than 2 years after the 
        rules required by the amendment made by this section take 
        effect, the Commission shall submit a report to the Congress on 
        the results of the study and review required by this paragraph.

SEC. 4. ENHANCED COMPENSATION STRUCTURE REPORTING TO REDUCE PERVERSE 
              INCENTIVES.

    (a) Enhanced Disclosure and Reporting of Compensation 
Arrangements.--
            (1) In general.--Not later than 9 months after the date of 
        enactment of this Act, the appropriate Federal regulators 
        jointly shall prescribe regulations to require each covered 
        financial institution to disclose to the appropriate Federal 
        regulator the structures of all incentive-based compensation 
        arrangements offered by such covered financial institutions 
        sufficient to determine whether the compensation structure--
                    (A) is aligned with sound risk management;
                    (B) is structured to account for the time horizon 
                of risks; and
                    (C) meets such other criteria as the appropriate 
                Federal regulators jointly may determine to be 
                appropriate to reduce unreasonable incentives offered 
                by such institutions for employees to take undue risks 
                that--
                            (i) could threaten the safety and soundness 
                        of covered financial institutions; or
                            (ii) could have serious adverse effects on 
                        economic conditions or financial stability.
            (2) Rules of construction.--Nothing in this subsection 
        shall be construed as requiring the reporting of the actual 
        compensation of particular individuals. Nothing in this 
        subsection shall be construed to require a covered financial 
        institution that does not have an incentive-based payment 
        arrangement to make the disclosures required under this 
        subsection.
    (b) Prohibition on Certain Compensation Arrangements.--Not later 
than 9 months after the date of enactment of this Act, and taking into 
account the factors described in subparagraphs (A), (B), and (C) of 
subsection (a)(1), the appropriate Federal regulators shall jointly 
prescribe regulations that prohibit any incentive-based payment 
arrangement, or any feature of any such arrangement, that the 
regulators determine encourages inappropriate risks by covered 
financial institutions that--
            (1) could threaten the safety and soundness of covered 
        financial institutions; or
            (2) could have serious adverse effects on economic 
        conditions or financial stability.
    (c) Enforcement.--The provisions of this section shall be enforced 
under section 505 of the Gramm-Leach-Bliley Act and, for purposes of 
such section, a violation of this section shall be treated as a 
violation of subtitle A of title V of such Act.
    (d) Definitions.--As used in this section--
            (1) the term ``appropriate Federal regulator'' means--
                    (A) the Board of Governors of the Federal Reserve 
                System;
                    (B) the Office of the Comptroller of the Currency;
                    (C) the Board of Directors of the Federal Deposit 
                Insurance Corporation;
                    (D) the Director of the Office of Thrift 
                Supervision;
                    (E) the National Credit Union Administration Board;
                    (F) the Securities and Exchange Commission; and
                    (G) the Federal Housing Finance Agency; and
            (2) the term ``covered financial institution'' means--
                    (A) a depository institution or depository 
                institution holding company, as such terms are defined 
                in section 3 of the Federal Deposit Insurance Act (12 
                U.S.C. 1813);
                    (B) a broker-dealer registered under section 15 of 
                the Securities Exchange Act of 1934 (15 U.S.C. 78o);
                    (C) a credit union, as described in section 
                19(b)(1)(A)(iv) of the Federal Reserve Act;
                    (D) an investment advisor, as such term is defined 
                in section 202(a)(11) of the Investment Advisers Act of 
                1940 (15 U.S.C. 80b-2(a)(11));
                    (E) the Federal National Mortgage Association;
                    (F) the Federal Home Loan Mortgage Corporation; and
                    (G) any other financial institution that the 
                appropriate Federal regulators, jointly, by rule, 
                determine should be treated as a covered financial 
                institution for purposes of this section.
    (e) Exemption for Certain Financial Institutions.--The requirements 
of this section shall not apply to covered financial institutions with 
assets of less than $1,000,000,000.
    (f) GAO Study.--
            (1) Study required.--
                    (A) In general.--The Comptroller General of the 
                United States shall carry out a study to determine 
                whether there is a correlation between compensation 
                structures and excessive risk taking.
                    (B) Factors to consider.--In carrying out the study 
                required under subparagraph (A), the Comptroller 
                General shall--
                            (i) consider compensation structures used 
                        by companies from 2000 to 2008; and
                            (ii) compare companies that failed, or 
                        nearly failed but for government assistance, to 
                        companies that remained viable throughout the 
                        housing and credit market crisis of 2007 and 
                        2008, including the compensation practices of 
                        all such companies.
                    (C) Determining companies that failed or nearly 
                failed.--In determining whether a company failed, or 
                nearly failed but for government assistance, for 
                purposes of subparagraph (B)(ii), the Comptroller 
                General shall focus on--
                            (i) companies that received exceptional 
                        assistance under the Troubled Asset Relief 
                        Program under title I of the Emergency Economic 
                        Stabilization Act of 2009 (12 U.S.C. 5211 et 
                        seq.) or other forms of significant government 
                        assistance, including under the Automotive 
                        Industry Financing Program, the Targeted 
                        Investment Program, the Asset Guarantee 
                        Program, and the Systemically Significant 
                        Failing Institutions Program;
                            (ii) the Federal National Mortgage 
                        Association;
                            (iii) the Federal Home Loan Mortgage 
                        Corporation; and
                            (iv) companies that participated in the 
                        Security and Exchange Commission's Consolidated 
                        Supervised Entities Program as of January 2008.
            (2) Report.--Not later than the end of the 1-year period 
        beginning on the date of the enactment of this Act, the 
        Comptroller General shall issue a report to the Congress 
        containing the results of the study required under paragraph 
        (1).
                                                 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 provide shareholders 
with an advisory vote on executive compensation and to prevent perverse 
  incentives in the compensation practices of financial institutions.

_______________________________________________________________________

                             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`