IIB 

111TH CONGRESS 

1ST SESSION H. R. 3269 

IN THE SENATE OF THE UNITED STATES 

AUGUST 3, 2009 

Received; read twice and referred to the Committee on Banking, Housing, and 

Urban Affairs 

AN ACT 

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, 


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1 SECTION 1. SHORT TITLE. 

2 This Act may be cited as the ‘‘Corporate and Finan3 cial Institution Compensation Fairness Act of 2009’’. 

4 SEC. 2. SHAREHOLDER VOTE ON EXECUTIVE COMPENSA5 TION DISCLOSURES. 

6 Section 14 of the Securities Exchange Act of 1934 

7 (15 U.S.C. 78n) is amended by adding at the end the fol8 lowing new subsection: 

9 ‘‘(i) ANNUAL SHAREHOLDER APPROVAL OF EXECU10 TIVE COMPENSATION.— 

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

12 authorization (the solicitation of which is subject to 

13 the rules of the Commission pursuant to subsection 

14 (a)) for an annual meeting of the shareholders to 

15 elect directors (or a special meeting in lieu of such 

16 meeting) where proxies are solicited in respect of 

17 any security registered under section 12 occurring 

18 on or after the date that is 6 months after the date 

19 on which final rules are issued under paragraph (4), 

20 shall provide for a separate shareholder vote to ap21 prove the compensation of executives as disclosed 

22 pursuant to the Commission’s compensation disclo23 sure rules for named executive officers (which disclo24 sure shall include the compensation committee re25 port, the compensation discussion and analysis, the 

26 compensation tables, and any related materials, to 


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1 the extent required by such rules). The shareholder 

2 vote shall not be binding on the issuer or the board 

3 of directors and shall not be construed as overruling 

4 a decision by such board, nor to create or imply any 

5 additional fiduciary duty by such board, nor shall 

6 such vote be construed to restrict or limit the ability 

7 of shareholders to make proposals for inclusion in 

8 such proxy materials related to executive compensa9 tion. 

10 ‘‘(2) SHAREHOLDER APPROVAL OF GOLDEN

11 PARACHUTE COMPENSATION.— 

12 ‘‘(A) DISCLOSURE.—In any proxy or con13 sent solicitation material (the solicitation of 

14 which is subject to the rules of the Commission 

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

16 shareholders occurring on or after the date that 

17 is 6 months after the date on which final rules 

18 are issued under paragraph (4), at which share19 holders are asked to approve an acquisition, 

20 merger, consolidation, or proposed sale or other 

21 disposition of all or substantially all the assets 

22 of an issuer, the person making such solicita23 tion shall disclose in the proxy or consent solici24 tation material, in a clear and simple form in 

25 accordance with regulations to be promulgated 


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1 by the Commission, any agreements or under2 standings that such person has with any named 

3 executive officers of such issuer (or of the ac4 quiring issuer, if such issuer is not the acquir5 ing issuer) concerning any type of compensation 

6 (whether present, deferred, or contingent) that 

7 is based on or otherwise relates to the acquisi8 tion, merger, consolidation, sale, or other dis9 position of all or substantially all of the assets 

10 of the issuer and the aggregate total of all such 

11 compensation that may (and the conditions 

12 upon which it may) be paid or become payable 

13 to or on behalf of such executive officer. 

14 ‘‘(B) SHAREHOLDER APPROVAL.—Any 

15 proxy or consent or authorization relating to 

16 the proxy or consent solicitation material con17 taining the disclosure required by subparagraph 

18 (A) shall provide for a separate shareholder 

19 vote to approve such agreements or under20 standings and compensation as disclosed, unless 

21 such agreements or understandings have been 

22 subject to a shareholder vote under paragraph 

23 (1). A vote by the shareholders shall not be 

24 binding on the issuer or the board of directors 

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1 tion and shall not be construed as overruling a 

2 decision by any such person or issuer, nor to 

3 create or imply any additional fiduciary duty by 

4 any such person or issuer. 

5 ‘‘(3) DISCLOSURE OF VOTES.—Every institu6 tional investment manager subject to section 13(f) 

7 shall report at least annually how it voted on any 

8 shareholder vote pursuant to paragraphs (1) or (2) 

9 of this section, unless such vote is otherwise required 

10 to be reported publicly by rule or regulation of the 

11 Commission. 

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

13 after the date of the enactment of the Corporate and 

14 Financial Institution Compensation Fairness Act of 

15 2009, the Commission shall issue final rules to im16 plement this subsection. 

17 ‘‘(5) EXEMPTION AUTHORITY.—The Commis18 sion may exempt certain categories of issuers from 

19 the requirements of this subsection, where appro20 priate in view of the purpose of this subsection. In 

21 determining appropriate exemptions, the Commis22 sion shall take into account, among other consider23 ations, the potential impact on smaller reporting 

24 issuers.’’. 


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1 SEC. 3. COMPENSATION COMMITTEE INDEPENDENCE. 

2 (a) STANDARDS RELATING TO COMPENSATION COM3 MITTEES.—The Securities Exchange Act of 1934 (15 

4 U.S.C. 78a et seq.) is amended by inserting after section 

5 10A the following new section: 

6 ‘‘SEC. 10B. STANDARDS RELATING TO COMPENSATION COM7 MITTEES. 

8 ‘‘(a) COMMISSION RULES.— 

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

10 months after the date of enactment of the Corporate 

11 and Financial Institution Compensation Fairness 

12 Act of 2009, the Commission shall, by rule, direct 

13 the national securities exchanges and national secu14 rities associations to prohibit the listing of any class 

15 of equity security of an issuer that is not in compli16 ance with the requirements of any portion of sub17 sections (b) through (f). 

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

19 rules of the Commission under paragraph (1) shall 

20 provide for appropriate procedures for an issuer to 

21 have an opportunity to cure any defects that would 

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

23 before the imposition of such prohibition. 

24 ‘‘(3) EXEMPTION AUTHORITY.—The Commis25 sion may exempt certain categories of issuers from 

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


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1 where appropriate in view of the purpose of this sec2 tion. In determining appropriate exemptions, the 

3 Commission shall take into account, among other 

4 considerations, the potential impact on smaller re5 porting issuers. 

6 ‘‘(b) INDEPENDENCE OF COMPENSATION COMMIT7 TEES.— 

8 ‘‘(1) IN GENERAL.—Each member of the com9 pensation committee of the board of directors of the 

10 issuer shall be independent. 

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

12 be independent for purposes of this subsection, a 

13 member of a compensation committee of an issuer 

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

15 member of the compensation committee, the board 

16 of directors, or any other board committee accept 

17 any consulting, advisory, or other compensatory fee 

18 from the issuer. 

19 ‘‘(3) EXEMPTION AUTHORITY.—The Commis20 sion may exempt from the requirements of para21 graph (2) a particular relationship with respect to 

22 compensation committee members, where appro23 priate in view of the purpose of this section. 

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

25 term ‘compensation committee’ means— 


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1 ‘‘(A) a committee (or equivalent body) es2 tablished by and amongst the board of directors 

3 of an issuer for the purpose of determining and 

4 approving the compensation arrangements for 

5 the executive officers of the issuer; and 

6 ‘‘(B) if no such committee exists with re7 spect to an issuer, the independent members of 

8 the entire board of directors. 

9 ‘‘(c) INDEPENDENCE STANDARDS FOR COMPENSA10 TION CONSULTANTS AND OTHER COMMITTEE ADVI11 SORS.—Any compensation consultant or other similar ad12 viser to the compensation committee of any issuer shall 

13 meet standards for independence established by the Com14 mission by regulation. 

15 ‘‘(d) COMPENSATION COMMITTEE AUTHORITY RE16 LATING TO COMPENSATION CONSULTANTS.— 

17 ‘‘(1) IN GENERAL.—The compensation com18 mittee of each issuer, in its capacity as a committee 

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

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

21 of a compensation consultant meeting the standards 

22 for independence promulgated pursuant to sub23 section (c), and the compensation committee shall be 

24 directly responsible for the appointment, compensa25 tion, and oversight of the work of such independent 


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1 compensation consultant. This provision shall not be 

2 construed to require the compensation committee to 

3 implement or act consistently with the advice or rec4 ommendations of the compensation consultant, and 

5 shall not otherwise affect the compensation commit6 tee’s ability or obligation to exercise its own judg7 ment in fulfillment of its duties. 

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

9 solicitation material for an annual meeting of the 

10 shareholders (or a special meeting in lieu of the an11 nual meeting) occurring on or after the date that is 

12 1 year after the date of enactment of the Corporate 

13 and Financial Institution Compensation Fairness 

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

15 or consent material, in accordance with regulations 

16 to be promulgated by the Commission whether the 

17 compensation committee of the issuer retained and 

18 obtained the advice of a compensation consultant 

19 meeting the standards for independence promulgated 

20 pursuant to subsection (c). 

21 ‘‘(3) REGULATIONS.—In promulgating regula22 tions under this subsection or any other provision of 

23 law with respect to compensation consultants, the 

24 Commission shall ensure that such regulations are 

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1 ants and preserve the ability of compensation com2 mittees to retain the services of members of any 

3 such category. 

4 ‘‘(e) AUTHORITY TO ENGAGE INDEPENDENT COUN5 SEL AND OTHER ADVISORS.—The compensation com6 mittee of each issuer, in its capacity as a committee of 

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

8 discretion, to retain and obtain the advice of independent 

9 counsel and other advisers meeting the standards for inde10 pendence promulgated pursuant to subsection (c), and the 

11 compensation committee shall be directly responsible for 

12 the appointment, compensation, and oversight of the work 

13 of such independent counsel and other advisers. This pro14 vision shall not be construed to require the compensation 

15 committee to implement or act consistently with the advice 

16 or recommendations of such independent counsel and 

17 other advisers, and shall not otherwise affect the com18 pensation committee’s ability or obligation to exercise its 

19 own judgment in fulfillment of its duties. 

20 ‘‘(f) FUNDING.—Each issuer shall provide for appro21 priate funding, as determined by the compensation com22 mittee, in its capacity as a committee of the board of direc23 tors, for payment of compensation— 

24 ‘‘(1) to any compensation consultant to the 

25 compensation committee that meets the standards 


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1 for independence promulgated pursuant to sub2 section (c), and 

3 ‘‘(2) to any independent counsel or other ad4 viser to the compensation committee.’’. 

5 (b) STUDY AND REVIEW REQUIRED.— 

6 (1) IN GENERAL.—The Securities and Ex7 change Commission shall conduct a study and review 

8 of the use of compensation consultants meeting the 

9 standards for independence promulgated pursuant to 

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

11 1934 (as added by subsection (a)), and the effects 

12 of such use. 

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

14 years after the rules required by the amendment 

15 made by this section take effect, the Commission 

16 shall submit a report to the Congress on the results 

17 of the study and review required by this paragraph. 

18 SEC. 4. ENHANCED COMPENSATION STRUCTURE REPORT19 ING TO REDUCE PERVERSE INCENTIVES. 

20 (a) ENHANCED DISCLOSURE AND REPORTING OF

21 COMPENSATION ARRANGEMENTS.— 

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

23 after the date of enactment of this Act, the appro24 priate Federal regulators jointly shall prescribe regu25 lations to require each covered financial institution 


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1 to disclose to the appropriate Federal regulator the 

2 structures of all incentive-based compensation ar3 rangements offered by such covered financial institu4 tions sufficient to determine whether the compensa5 tion structure— 

6 (A) is aligned with sound risk manage7 ment; 

8 (B) is structured to account for the time 

9 horizon of risks; and 

10 (C) meets such other criteria as the appro11 priate Federal regulators jointly may determine 

12 to be appropriate to reduce unreasonable incen13 tives offered by such institutions for employees 

14 to take undue risks that— 

15 (i) could threaten the safety and 

16 soundness of covered financial institutions; 

17 or 

18 (ii) could have serious adverse effects 

19 on economic conditions or financial sta20 bility. 

21 (2) RULES OF CONSTRUCTION.—Nothing in 

22 this subsection shall be construed as requiring the 

23 reporting of the actual compensation of particular 

24 individuals. Nothing in this subsection shall be con25 strued to require a covered financial institution that 


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1 does not have an incentive-based payment arrange2 ment to make the disclosures required under this 

3 subsection. 

4 (b) PROHIBITION ON CERTAIN COMPENSATION AR5 RANGEMENTS.—Not later than 9 months after the date 

6 of enactment of this Act, and taking into account the fac7 tors described in subparagraphs (A), (B), and (C) of sub8 section (a)(1), the appropriate Federal regulators shall 

9 jointly prescribe regulations that prohibit any incentive10 based payment arrangement, or any feature of any such 

11 arrangement, that the regulators determine encourages in12 appropriate risks by covered financial institutions that— 

13 (1) could threaten the safety and soundness of 

14 covered financial institutions; or 

15 (2) could have serious adverse effects on eco16 nomic conditions or financial stability. 

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

18 shall be enforced under section 505 of the Gramm-Leach19 Bliley Act and, for purposes of such section, a violation 

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

21 A of title V of such Act. 

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

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

24 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; 

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

13 (G) the Federal Housing Finance Agency; 

14 and 

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

16 means— 

17 (A) a depository institution or depository 

18 institution holding company, as such terms are 

19 defined in section 3 of the Federal Deposit In20 surance Act (12 U.S.C. 1813); 

21 (B) a broker-dealer registered under sec22 tion 15 of the Securities Exchange Act of 1934 

23 (15 U.S.C. 78o); 

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

25 19(b)(1)(A)(iv) of the Federal Reserve Act; 


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

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

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

4 (E) the Federal National Mortgage Asso5 ciation; 

6 (F) the Federal Home Loan Mortgage 

7 Corporation; and 

8 (G) any other financial institution that the 

9 appropriate Federal regulators, jointly, by rule, 

10 determine should be treated as a covered finan11 cial institution for purposes of this section. 

12 (e) EXEMPTION FOR CERTAIN FINANCIAL INSTITU13 TIONS.—The requirements of this section shall not apply 

14 to covered financial institutions with assets of less than 

15 $1,000,000,000. 

16 (f) LIMITATION.—No regulation promulgated pursu17 ant to this section shall be allowed to require the recovery 

18 of incentive-based compensation under compensation ar19 rangements in effect on the date of enactment of this Act, 

20 provided such compensation agreements are for a period 

21 of no more than 24 months. Nothing in this Act shall pre22 vent or limit the recovery of incentive-based compensation 

23 under any other applicable law. 

24 (g) GAO STUDY.— 

25 (1) STUDY REQUIRED.— 


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1 (A) IN GENERAL.—The Comptroller Gen2 eral of the United States shall carry out a 

3 study to determine whether there is a correla4 tion between compensation structures and ex5 cessive risk taking. 

6 (B) FACTORS TO CONSIDER.—In carrying 

7 out the study required under subparagraph (A), 

8 the Comptroller General shall— 

9 (i) consider compensation structures 

10 used by companies from 2000 to 2008; and 

11 (ii) compare companies that failed, or 

12 nearly failed but for government assist13 ance, to companies that remained viable 

14 throughout the housing and credit market 

15 crisis of 2007 and 2008, including the 

16 compensation practices of all such compa17 nies. 

18 (C) DETERMINING COMPANIES THAT

19 FAILED OR NEARLY FAILED.—In determining 

20 whether a company failed, or nearly failed but 

21 for government assistance, for purposes of sub22 paragraph (B)(ii), the Comptroller General 

23 shall focus on— 

24 (i) companies that received excep25 tional assistance under the Troubled Asset 


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1 Relief Program under title I of the Emer2 gency Economic Stabilization Act of 2009 

3 (12 U.S.C. 5211 et seq.) or other forms of 

4 significant government assistance, includ5 ing under the Automotive Industry Financ6 ing Program, the Targeted Investment 

7 Program, the Asset Guarantee Program, 

8 and the Systemically Significant Failing 

9 Institutions Program; 

10 (ii) the Federal National Mortgage 

11 Association; 

12 (iii) the Federal Home Loan Mort13 gage Corporation; and 

14 (iv) companies that participated in the 

15 Security and Exchange Commission’s Con16 solidated Supervised Entities Program as 

17 of January 2008. 

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

19 year period beginning on the date of the enactment 

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1 port to the Congress containing the results of the 

2 study required under paragraph (1). 

Passed the House of Representatives July 31, 2009. 

Attest: LORRAINE C. MILLER, 

Clerk. 


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