A bill to amend the Internal Revenue Code of 1986 to limit certain executive compensation paid by systemically significant financial institutions.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Wall Street Compensation Reform Act 
of 2010''.

SEC. 2. EXECUTIVE COMPENSATION PAID BY SYSTEMICALLY SIGNIFICANT 
              FINANCIAL INSTITUTIONS.

    (a) In General.--Subsection (m) of section 162 of the Internal 
Revenue Code of 1986 is amended by adding at the end the following new 
paragraph:
            ``(6) Special rule for application to systemically 
        significant financial institutions.--
                    ``(A) In general.--In the case of an employer which 
                is a systemically significant financial institution, 
                this subsection shall apply with the following 
                modifications:
                            ``(i) Non-public entities.--Paragraph (1) 
                        shall be applied by substituting `employer' for 
                        `publicly held corporation'.
                            ``(ii) Covered employees.--Paragraph (3) 
                        shall be applied--
                                    ``(I) by substituting `such 
                                employee is among the 25 highest 
                                compensated employees' for so much of 
                                subparagraph (B) as precedes `for the 
                                taxable year (other than the chief 
                                executive officer).', and
                                    ``(II) in addition to the 
                                individuals described in such paragraph 
                                (including the individuals described in 
                                subclause (I) of this clause), by 
                                treating any employee whose actions 
                                have a material impact on the risk 
                                exposure of the taxpayer as a covered 
                                employee.
                        Any employee whose applicable employee 
                        remuneration for the taxable year exceeds 
                        $1,000,000 is presumed to engage in actions 
                        which have a material impact on the risk 
                        exposure of the taxpayer unless the taxpayer 
                        submits an information return to the Secretary 
                        which describes the role and responsibilities 
                        of such employee and the reason such employee 
                        should not be considered to have a material 
                        impact on the risk exposure of the taxpayer. 
                        Such return shall be deemed to have been 
                        approved unless the Secretary notifies the 
                        taxpayer in writing within 90 days of the 
                        submission of such return. For purposes of this 
                        clause, the term `employee' includes employees 
                        within the meaning of section 401(c)(1).
                            ``(iii) Remuneration payable on commission 
                        basis.--Subparagraph (B) of paragraph (4) shall 
                        not apply.
                            ``(iv) Deferred deduction executive 
                        remuneration.--In the case of any deferred 
                        deduction executive remuneration (as determined 
                        under rules similar to the rules of paragraph 
                        (5)(F), if executive remuneration for purposes 
                        of such paragraph included remuneration of 
                        covered employees as defined in clause (ii) of 
                        this paragraph, and if the year in which the 
                        applicable services were performed were treated 
                        as an applicable taxable year), rules similar 
                        to the rules of paragraph (5)(A)(ii) shall 
                        apply by substituting `$1,000,000' for 
                        `$500,000'.
                    ``(B) Systemically significant financial 
                institution.--
                            ``(i) In general.--For purposes of this 
                        paragraph, the term `systemically significant 
                        financial institution' means an entity which 
                        engages primarily in activities which are 
                        financial in nature (as determined under 
                        section 4(k) of the Bank Holding Company Act of 
                        1956), and which--
                                    ``(I) owns or controls assets 
                                greater than $25,000,000,000, or
                                    ``(II) owns or controls assets 
                                greater than $10,000,000,000 and 
                                maintains a ratio of debt to equity 
                                which is greater than 20 to 1.
                            ``(ii) Classification.--A taxpayer which is 
                        a systemically significant financial 
                        institution for any taxable year shall be a 
                        systemically significant financial institution 
                        for purposes of all subsequent taxable years.
                    ``(C) Special rules for performance-based 
                compensation.--Remuneration payable solely on account 
                of the attainment of one or more performance goals 
                (hereinafter `performance-based remuneration') which is 
                paid by any systemically significant financial 
                institution to any covered employee (as determined 
                under subparagraph (A)(ii)) shall not be excluded under 
                subparagraph (C) of paragraph (4) from treatment as 
                applicable employee remuneration unless the following 
                requirements are met:
                            ``(i) Performance-based compensation 
                        pool.--The amount and allocation of the 
                        taxpayer's performance-based remuneration for 
                        covered employees are determined by the 
                        compensation committee required under paragraph 
                        (4)(C)(i) by taking into account--
                                    ``(I) the cost and quantity of 
                                capital required to support the risks 
                                taken by the taxpayer in the conduct of 
                                the financial activities of the 
                                taxpayer,
                                    ``(II) the cost and quantity of the 
                                liquidity risk assumed by the taxpayer 
                                in the conduct of such activities, and
                                    ``(III) the timing and likelihood 
                                of potential future revenues from such 
                                activities.
                            ``(ii) Material terms.--The material terms 
                        of performance-based remuneration paid to 
                        covered employees specify that--
                                    ``(I) not less than 50 percent of 
                                such remuneration must vest no earlier 
                                than 5 years after the date of payment,
                                    ``(II) the proportion of such 
                                remuneration payable under vesting 
                                arrangements must increase based on the 
                                level of seniority or responsibility of 
                                the employee,
                                    ``(III) such remuneration payable 
                                under vesting arrangements must vest on 
                                a basis no faster than pro rata over 
                                the specified number of years of such 
                                arrangement (not to be less than 5),
                                    ``(IV) such remuneration is 
                                contingent on a formal agreement 
                                between the taxpayer and the employee 
                                which forbids the use of personal 
                                hedging strategies, remuneration-
                                related insurance, or liability-related 
                                insurance which undermines the risk 
                                alignment effects of this paragraph,
                                    ``(V) in the case of an employer 
                                which is a publicly held corporation, 
                                not less than 50 percent of such 
                                remuneration must be in the form of 
                                stock in the employer, and
                                    ``(VI) in the case of remuneration 
                                paid to a chief executive officer or 
                                chief financial officer (if such chief 
                                financial officer is a covered 
                                employee) of a publicly held 
                                corporation, such remuneration must be 
                                subject to substantial forfeiture 
                                requirements in the event the taxpayer 
                                is required to prepare an accounting 
                                restatement due to material 
                                noncompliance, as a result of 
                                misconduct, with any financial 
                                reporting requirement under Federal 
                                securities laws.
                        For purposes of this clause, the date on which 
                        remuneration is deemed to have vested is the 
                        first date on which such remuneration is not 
                        subject to a substantial risk of forfeiture 
                        (within the meaning of section 409A(d)(4)).
                    ``(D) Special rule for performance-based 
                compensation paid by non-public entities.--In the case 
                of a systemically significant financial institution 
                which is not a publicly held corporation, in addition 
                to the requirements of subparagraph (C), paragraph 
                (4)(C) shall be applied by substituting the following 
                for clauses (i) through (iii) thereof:
                            ``(i) the taxpayer commissions an annual, 
                        external review of its compensation policies 
                        and practices, including an examination and 
                        analysis of the taxpayer's compliance with the 
                        requirements of this subsection, and
                            ``(ii) the taxpayer obtains certification 
                        from an unrelated third party commissioned to 
                        evaluated compensation practices that 
                        performance goals and other material terms 
                        under which the remuneration is to be paid are 
                        satisfied before any payment of such 
                        remuneration is made.'.
                For purposes of the preceding sentence, all persons 
                treated as a single employer under subsection (a) or 
                (b) of section 52 or subsection (b) or (c) of section 
                414 shall be treated as related taxpayers.
                    ``(E) Coordination with rules for employers 
                participating in the troubled assets relief program.--
                In the case of any systemically significant financial 
                institution to which paragraph (5) applies for any 
                taxable year, this paragraph shall not apply to any 
                payment of remuneration to which such paragraph 
                applies.
                    ``(F) Regulatory authority.--Not later than 180 
                days after the date of the enactment of this paragraph, 
                the Secretary shall prescribe such guidance, rules, or 
                regulations of general applicability as are necessary 
                to carry out the purposes of this paragraph, 
                including--
                            ``(i) the method for valuing assets for 
                        purposes of subparagraph (B)(i),
                            ``(ii) the method for calculating the ratio 
                        described in subparagraph (B)(i)(II),
                            ``(iii) criteria for use in determining 
                        whether the actions of an employee have a 
                        material impact on the risk exposure of the 
                        taxpayer, and for determining what constitutes 
                        a substantial forfeiture requirement with 
                        respect to executive remuneration,
                            ``(iv) criteria for determining whether a 
                        remuneration agreement constitutes a hedging 
                        strategy, and
                            ``(v) anti-abuse rules to prevent the 
                        avoidance of the purposes of this paragraph, 
                        including by use of independent contractors.
                    ``(G) Application of paragraph.--This paragraph 
                shall apply--
                            ``(i) in the case of an entity which is a 
                        systemically significant financial institution 
                        in calendar 2010, to remuneration for services 
                        performed in calendar years beginning after 
                        2010, and
                            ``(ii) in the case of an entity which 
                        becomes a systemically significant financial 
                        institution in a calender year after 2010, to 
                        remuneration for services performed in calendar 
                        years beginning with the second calendar year 
                        after the year in which such entity first 
                        becomes a systemically significant financial 
                        institution.''.
    (b) Conforming Amendment.--Subparagraph (G) of section 162(m)(5) of 
the Internal Revenue Code of 1986 is amended by adding at the end the 
following: ``Paragraph (6) shall not apply to any payment of 
remuneration to which this paragraph applies.''.
    (c) Report on Performance-Based Compensation Paid by Publicly Held 
Corporations.--
            (1) In general.--Each systemically significant financial 
        institution which is a publicly held corporation shall submit 
        to the Chairman of the Securities and Exchange Commission, and 
        shall make publicly available, an annual report on compensation 
        policies and practices which describes--
                    (A) the process used to develop and modify such 
                institution's compensation policies, including the 
                composition and the mandate of such institution's 
                compensation committee,
                    (B) the actions taken by such institution to comply 
                with section 162(m)(6) of the Internal Revenue Code of 
                1986,
                    (C) any additional actions taken to implement the 
                Principles for Sound Compensation Practices adopted by 
                the Financial Stability Board established by the G-20 
                Finance Ministers and Central Bank Governors,
                    (D) the most important design characteristics of 
                such institution's compensation policies, including 
                criteria used for performance measurement and risk 
                adjustment, the linkage between pay and performance, 
                vesting policy and criteria, and the parameters used 
                for allocating cash versus other forms of remuneration,
                    (E) aggregate quantitative information on 
                remuneration paid by such institution, differentiating 
                between remuneration paid to senior executive officers 
                and to employees whose actions have a material impact 
                on the risk exposure of such institution, which 
                indicates the amounts of remuneration for the financial 
                year (divided into fixed and variable remuneration) and 
                the number of employees to which such remuneration was 
                paid, and
                    (F) the amount of remuneration paid by such 
                institution during the financial year preceding the 
                year of the report which was nondeductible by reason of 
                section 162(m) of such Code.
            (2) Timing of report.--The report required under paragraph 
        (1) shall be submitted beginning in calendar year 2011 (or, if 
        later, the calendar year after the year in which an entity 
        first becomes a systemically significant financial institution 
        which is a publicly held corporation), at such time during such 
        year and each subsequent year as the Chairman of the Securities 
        and Exchange Commission shall specify.
            (3) Definitions.--Any term used in this subsection which is 
        also used in section 162(m)(6) of the Internal Revenue Code of 
        1986 shall have the same meaning as when used in such section.
    (d) Effective Date.--The amendments made by subsections (a) and (b) 
shall apply to remuneration for services performed after December 31, 
2010.

Summary: Wall Street Compensation Reform Act of 2010 - Amends the Internal Revenue Code to restrict the tax deduction for compensation paid to highly-paid employees of systemically significant financial institutions. Requires such compensation to be performance-based, to vest no earlier than five years after the date of payment, and to consist of 50% employer stock. Prohibits such highly-paid employees from using personal hedging strategies and remuneration or liability-related insurance and requires forfeiture of compensation paid to a chief executive or financial officer of such an institution if an accounting restatement is required due to material noncompliance, as a result of misconduct, with any federal financial reporting requirement.

Defines a "systemically significant financial institution" as an entity which engages primarily in financial activities (as determined under the Bank Holding Company Act of 1956) and which: (1) owns or controls assets greater than $25 billion; or (2) owns or controls assets greater than $10 billion and maintains a ratio of debt to equity greater than 20 to 1.

Requires each systemically significant financial institution which is a publicly held corporation to make an annual report on its compensation policies and practices to the Securities and Exchange Commission (SEC) and make such report publicly available.