[House Report 111-237]
[From the U.S. Government Publishing Office]


111th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    111-237

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   PROVIDING FOR CONSIDERATION OF THE BILL (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

                                _______
                                

   July 30, 2009.--Referred to the House Calendar and ordered to be 
                                printed

                                _______
                                

   Mr. McGovern, from the Committee on Rules, submitted the following

                              R E P O R T

                       [To accompany H. Res. 697]

    The Committee on Rules, having had under consideration 
House Resolution 697, by a non-record vote, report the same to 
the House with the recommendation that the resolution be 
adopted.

                SUMMARY OF PROVISIONS OF THE RESOLUTION

    The resolution provides for consideration of H.R. 3269, the 
``Corporate and Financial Institution Compensation Fairness Act 
of 2009,'' under a structured rule providing one hour of 
general debate in the House equally divided and controlled by 
the chairman and ranking minority member of the Committee on 
Financial Services. The resolution waives all points of order 
against consideration of the bill except for clauses 9 and 10 
of rule XXI. The amendment in the nature of a substitute 
recommended by the Committee on Financial Services now printed 
in the bill shall be considered as adopted. The resolution 
waives all points of order against provisions of the bill, as 
amended. This waiver does not affect the point of order 
available under clause 9 of rule XXI (regarding earmark 
disclosure). The resolution provides that the bill, as amended, 
shall be considered as read.
    The resolution makes in order the amendment printed in this 
report if offered by Rep. Frank or his designee, which shall be 
considered as read, shall be separately debatable for 10 
minutes equally divided and controlled by the proponent and an 
opponent, and shall not be subject to a demand for division of 
the question. The resolution also makes in order the amendment 
in the nature of a substitute printed in this report, if 
offered by Representative Garrett or his designee, which shall 
be separately debatable for 30 minutes equally divided and 
controlled by the proponent and an opponent.
    The resolution waives all points of order against the 
amendments printed in this report except for clauses 9 and 10 
of rule XXI. The resolution provides one motion to recommit 
with or without instructions. The rule also provides that 
during consideration of an amendment printed in the report of 
the Committee on Rules accompanying this resolution, the Chair 
may postpone the question of adoption as though under clause 8 
of rule XX. Finally the rule provides that in the engrossment 
of the bill, the Clerk is authorized to make technical and 
conforming changes to amendatory instructions.

                         EXPLANATION OF WAIVERS

    The waiver of all points of order against consideration of 
the bill (except those arising under clause 9 or 10 of rule 
XXI) includes a waiver of clause 4(a) of rule XIII (regarding 
availability of committee report). Although the resolution 
waives all points of order against the bill, as amended, the 
Committee is not aware of any points of order. The waiver of 
all points of order is prophylactic.

                            COMMITTEE VOTES

    The results of each record vote on an amendment or motion 
to report, together with the names of those voting for and 
against, are printed below:

Rules Committee record vote No. 242

    Date: July 30, 2009.
    Measure: H.R. 3269.
    Motion by: Mr. Diaz-Balart.
    Summary of motion: To make in order and provide appropriate 
waivers for an amendment by Reps. Lance (NJ) and Price, Tom 
(GA), #3, which would strike section 4 of the bill and leave in 
place a GAO study into the effects of executive compensation on 
system risk.
    Results: Defeated 3-7.
    Vote by Members: McGovern--Nay; Hastings--Nay; Cardoza--
Nay; Arcuri--Nay; Perlmutter--Nay; Pingree--Nay; Polis--Nay; 
Dreier--Yea; Diaz-Balart--Yea; Sessions--Yea.

Rules Committee record vote No. 243

    Date: July 30, 2009.
    Measure: H.R. 3269.
    Motion by: Mr. Sessions.
    Summary of motion: To make in order and provide appropriate 
waivers for an amendment by Rep. Sessions (TX), #4, which would 
clarify that this bill creates no new private right of action, 
nor would its passage make a compensation committee's decisions 
(including any action deemed non-compliant from this non-
binding vote) subject to any existing private right of action, 
and an amendment by Rep. Sessions (TX), #5, which would create 
SEC disclosure requirements for any group wanting to influence 
the shareholder's vote, which would include the disclosure of, 
(1) who they are, (2) what activities they are engaged in, and 
(3) how much is being spent on these activities.
    Results: Defeated 3-7.
    Vote by Members: McGovern--Nay; Hastings--Nay; Cardoza--
Nay; Arcuri--Nay; Perlmutter--Nay; Pingree--Nay; Polis--Nay; 
Dreier--Yea; Diaz-Balart--Yea; Sessions--Yea.

Rules Committee record vote No. 244

    Date: July 30, 2009.
    Measure: H.R. 3269.
    Motion by: Mr. Sessions.
    Summary of motion: To make in order and provide appropriate 
waivers for an amendment by Rep. Hensarling, #7, which would 
apply section 4 of the legislation only to TARP recipients and 
it would only be in effect while the federal assistance is 
outstanding.
    Results: Defeated 3-7.
    Vote by Members: McGovern--Nay; Hastings--Nay; Cardoza--
Nay; Arcuri--Nay; Perlmutter--Nay; Pingree--Nay; Polis--Nay; 
Dreier--Yea; Diaz-Balart--Yea; Sessions--Yea.

               SUMMARY OF AMENDMENTS TO BE MADE IN ORDER

    1. Frank (MA)--Would strike language prohibiting clawbacks 
of executive compensation approved by shareholders and insert 
language prohibiting rules of financial regulators from 
requiring recovery of incentive-based pay under arrangements in 
effect on the date of enactment. (10 minutes)
    2. Garrett (NJ): Amendment in the nature of a substitute--
Would replace annual shareholder ``say on pay'' vote with a 
triennial vote on compensation for public companies, allow 
shareholders to opt out of ``say on pay'' provision, allow 
state law to preempt the bill regarding independent 
compensation committees, and strike Section 4 of the bill. (30 
minutes)

                 TEXT OF AMENDMENTS TO BE MADE IN ORDER

1. An Amendment To Be Offered by Representative Frank of Massachusetts, 
               or His Designee, Debatable for 10 Minutes

    Page 3, line 8, strike ``(a) Amendment.--''.
    Page 7, strike lines 1 through 14.
    Page 17, after line 4, insert the following:
    (f) Limitation.--No regulation promulgated pursuant to this 
section shall require the recovery of incentive-based 
compensation under compensation arrangements in effect on the 
date of enactment of this Act, provided such compensation 
agreements are for a period of no more than 24 months. Nothing 
in this Act shall prevent or limit the recovery of incentive-
based compensation under any other applicable law.
    Page 17, line 5, strike ``(f)'' and insert ``(g)''.
                              ----------                              


2. An Amendment To Be Offered by Representative Garrett of New Jersey, 
               or His Designee, Debatable for 30 Minutes

  Strike all after the enacting clause and insert the 
following:

SEC. 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.

  (a) Amendment to the Securities Exchange Act of 1934.--
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) Triennial Advisory Shareholder Vote on Executive 
Compensation.--
          ``(1) In general.--A proxy or consent or 
        authorization for an annual meeting of the shareholders 
        to elect directors (or a special meeting in lieu of 
        such meeting) 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 advisory vote, at least once every 3 years, 
        to approve the issuer's executive compensation policies 
        and practices as set forth pursuant to the Commission's 
        disclosure rules. The shareholder vote shall be 
        advisory in nature and shall not be binding on the 
        issuer or its 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 proxy materials related to 
        executive compensation for meetings of shareholders at 
        which such an advisory vote on executive compensation 
        is not to be conducted.
          ``(2) Opt out.--If not less than \2/3\ of votes cast 
        at a meeting of shareholders on a proposal to opt out 
        of the triennial shareholder advisory vote on executive 
        compensation required under paragraph (1) are cast in 
        favor of such a proposal, then such shareholder 
        advisory vote required under such paragraph shall not 
        be required to take place for a period of 5 years 
        following the vote approving such proposal.
          ``(3) Shareholder approval of golden parachute 
        compensation.--
                  ``(A) Disclosure.--In any proxy or consent 
                solicitation material 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 tabular form in 
                accordance with regulations to be promulgated 
                by the Commission, any agreements or 
                understandings that such person has with the 
                named executive officers (as such term is 
                defined in the rules promulgated by the 
                Commission) 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 dispositions 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 named 
                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. A vote by the 
                shareholders shall not be binding on the 
                corporation or the board of directors of the 
                issuer or the person making the solicitation 
                and shall not be construed as overruling a 
                decision by such board, nor to create or imply 
                any additional fiduciary duty by such board.''
          ``(4) Rulemaking.--Not later than 1 year after the 
        date of the enactment of the Corporate and Financial 
        Institution Compensation Fairness Act of 2009, the 
        Commission shall issue rules and regulations to 
        implement this subsection.''.
  (b) Study and Report.--The Securities and Exchange Commission 
shall conduct a study and review of the results of shareholder 
advisory votes on executive compensation held pursuant to this 
section and the effects of such votes. Not later than 5 years 
after the date of enactment of this Act, the Securities and 
Exchange Commission shall submit a report to the Congress on 
the results of the study and review required by this 
subsection.

SEC. 3. COMPENSATION COMMITTEE INDEPENDENCE.

  (a) Standards Relating to Compensation Committees.--The 
Securities Exchange Act of 1934 (15 U.S.C. 78f) 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 270 days 
        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 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.
          ``(4) No federal preemption.--If the law of the State 
        under which an issuer is incorporated provides for a 
        procedure for the board of directors to establish an 
        independent compensation committee, then such State law 
        shall be controlling and nothing in this section shall 
        preempt such State law.
  ``(b) Independence of Compensation Committees.--
          ``(1) In general.--Each member of the compensation 
        committee of the board of directors of the issuer shall 
        be a member of the board of directors of the issuer, 
        and shall otherwise be independent.
          ``(2) Criteria.--The Commission shall, by rule, 
        establish the criteria for determining whether a 
        director is independent for purposes of this 
        subsection. Such rules shall require that 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--
                  ``(A) accept any consulting, advisory, or 
                other compensatory fee from the issuer; or
                  ``(B) be an affiliated person of the issuer 
                or any subsidiary thereof.
          ``(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.--The charter of the compensation 
committee of the board of directors of an issuer shall set 
forth that any outside compensation consultant formally engaged 
or retained by the compensation committee shall meet standards 
for independence to be promulgated by the Commission.
  ``(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).
  ``(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 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 Security Exchange Act of 1934 (as added by 
        subsection (a)), and the effects of such use.
          (2) Report to congress.--Not later than 3 years after 
        the date of enactment of this Act, the Commission shall 
        submit a report to the Congress on the results of the 
        study and review required by this paragraph.

                                  
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