[House Report 111-64]
[From the U.S. Government Publishing Office]
111th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 111-64
======================================================================
AMENDING THE EXECUTIVE COMPENSATION PROVISIONS OF THE EMERGENCY
ECONOMIC STABILIZATION ACT OF 2008 TO PROHIBIT UNREASONABLE AND
EXCESSIVE COMPENSATION AND COMPENSATION NOT BASED ON PERFORMANCE
STANDARDS
_______
March 30, 2009.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Frank of Massachusetts, from the Committee on Financial Services,
submitted the following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 1664]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred
the bill (H.R. 1664) to amend the executive compensation
provisions of the Emergency Economic Stabilization Act of 2008
to prohibit unreasonable and excessive compensation and
compensation not based on performance standards, having
considered the same, report favorably thereon with an amendment
and recommend that the bill as amended do pass.
CONTENTS
Page
Amendment........................................................ 2
Purpose and Summary.............................................. 3
Background and Need for Legislation.............................. 3
Hearings......................................................... 4
Committee Consideration.......................................... 5
Committee Votes.................................................. 5
Committee Oversight Findings..................................... 7
Performance Goals and Objectives................................. 7
New Budget Authority, Entitlement Authority, and Tax Expenditures 7
Committee Cost Estimate.......................................... 7
Congressional Budget Office Estimate............................. 7
Federal Mandates Statement....................................... 8
Advisory Committee Statement..................................... 9
Constitutional Authority Statement............................... 9
Applicability to Legislative Branch.............................. 9
Earmark Identification........................................... 9
Section-by-Section Analysis of the Legislation................... 9
Changes in Existing Law Made by the Bill, as Reported............ 10
Dissenting Views................................................. 14
Amendment
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. PROHIBITION ON CERTAIN COMPENSATION.
(a) Prohibition on Certain Compensation Not Based on Performance
Standards.--Section 111 of the Emergency Economic Stabilization Act of
2008 (12 U.S.C. 5221) is amended by redesignating subsections (e)
through (h) as subsections (f) through (i), and inserting after
subsection (d) the following:
``(e) Prohibition on Certain Compensation Not Based on Performance
Standards.--
``(1) Prohibition.--No financial institution that has
received or receives a direct capital investment under the
Troubled Assets Relief Program under this title, or with
respect to the Federal National Mortgage Association, the
Federal Home Loan Mortgage Corporation, or a Federal home loan
bank, under the amendments made by section 1117 of the Housing
and Economic Recovery Act of 2008, may, while that capital
investment remains outstanding, make a compensation payment,
other than a longevity bonus or a payment in the form of
restricted stock, to any executive or employee under any
existing compensation arrangement, or enter into a new
compensation payment arrangement, if such compensation payment
or compensation payment arrangement--
``(A) provides for compensation that is unreasonable
or excessive, as defined in standards established by
the Secretary, in consultation with the Chairperson of
the Congressional Oversight Panel established under
section 125, in accordance with paragraph (2); or
``(B) includes any bonus or other supplemental
payment that is not directly based on performance-based
measures set forth in standards established by the
Secretary in accordance with paragraph (2).
Provided that, nothing in this paragraph applies to an
institution that did business with a recipient of a direct
capital investment under the TARP.
``(2) Standards.--Not later than 30 days after the date of
enactment of this subsection, the Secretary, with the approval
of the agencies that are members of the Federal Financial
Institutions Examination Council, and in consultation with the
Chairperson of the Congressional Oversight Panel established
under section 125, shall establish the following:
``(A) Unreasonable and excessive compensation
standards.--Standards that define `unreasonable or
excessive' for purposes of subparagraph (1)(A).
``(B) Performance-based standards.--Standards for
performance-based measures that a financial institution
must apply when determining whether it may provide a
bonus or retention payment under paragraph (1)(B). Such
performance measures shall include--
``(i) the stability of the financial
institution and its ability to repay or begin
repaying the United States for any capital
investment received under this title;
``(ii) the performance of the individual
executive or employee to whom the payment
relates;
``(iii) adherence by executives and employees
to appropriate risk management requirements;
and
``(iv) other standards which provide greater
accountability to shareholders and taxpayers.
``(3) Reporting requirement.--
``(A) In general.--Any financial institution that is
subject to the requirements of paragraph (1) shall, not
later than 90 days after the date of enactment of this
subsection and annually on March 31 each year
thereafter, transmit to the Secretary, who shall make a
report which states how many persons (officers,
directors, and employees) received or will receive
total compensation in that fiscal year in each of the
following amounts:
``(i) over $500,000;
``(ii) over $1,000,000;
``(iii) over $2,000,000;
``(iv) over $3,000,000; and
``(v) over $5,000,000.
The report shall distinguish amounts the institution
considers to be a bonus and the reason for such
distinction. The name or identity of persons receiving
compensation in such amounts shall not be required in
such reports. The Secretary shall make such reports
available on the Internet. Any financial institution
subject to this paragraph shall issue a retrospective
annual report for 2008 and both a prospective and
retrospective annual report for each subsequent
calendar year until such institution ceases to be
subject to this paragraph.
``(B) Total compensation defined.--For purposes of
this paragraph, the term `total compensation' includes
all cash payments (including without limitation salary,
bonus, retention payments), all transfers of property,
stock options, sales of stock, and all contributions by
the company (or its affiliates) for that person's
benefit.''.
(b) Revision to Rule of Construction.--Section 111(b)(3)(D)(iii) of
the Emergency Economic Stabilization Act of 2008 (12 U.S.C.
5221(b)(3)(D)(iii)) is amended by inserting before the period the
following: ``, except that an entity subject to subsection (e) may not,
while a capital investment described in that subsection remains
outstanding, pay a bonus or other supplemental payment that is
otherwise prohibited by clause (i) without regard to when the
arrangement to pay such a bonus was entered into''.
Purpose and Summary
The purpose of this bill is to prohibit financial
institutions that receive direct capital investments under the
Troubled Asset Relief Program (TARP) established by the
Emergency Economic Stabilization Act of 2008 (EESA) and
institutions that receive direct capital investments under the
Housing and Economic Recovery Act of 2008 (HERA) from paying
their executives and employees (a) compensation that is
unreasonable or excessive or (b) bonuses or other supplemental
payments that are not directly based on performance-based
standards for the period during which such investments remain
outstanding. In addition, the bill would ensure that the limits
on compensation for highly-compensated employees included in
Title VII of the American Recovery and Reinvestment Act of 2009
(ARRA), which amended Title I of EESA, apply to highly-
compensated employees of financial institutions that receive
direct capital investments under TARP for the period during
which such investments remain outstanding regardless of when a
compensation agreement was executed.
Background and Need for Legislation
The TARP, established by EESA in October 2008, was designed
to restore liquidity and stability to the U.S. financial system
after the market disturbances that began in 2007. The Secretary
of the Treasury has used authority given to him under the TARP
to make direct capital investments in various U.S. financial
institutions. The EESA, as amended by ARRA, contains
compensation restrictions for highly-paid executives of
financial institutions that receive assistance under TARP.
These restrictions, which apply for so long as TARP assistance
remains outstanding, include a prohibition against a financial
institution's payment of bonuses, retention awards, or
incentive compensation, other than payments of long-term
restricted stock that is not fully vested and is in an amount
that does not exceed one-third of the individual's total
compensation. The ARRA included an exception from the
prohibition to allow bonus payments that were payable pursuant
to written employment contracts executed on or before February
11, 2009, as determined by the Secretary.
Also in response to the market disturbances that began in
2007, HERA contained provisions specifically designed to
stabilize the housing finance market, in part by allowing the
Treasury Secretary to make direct investments in the Federal
National Mortgage Association (Fannie Mae), the Federal Home
Loan Mortgage Corporation (Freddie Mac), or a Federal Home Loan
Bank (collectively, GSEs). Like EESA, HERA contained various
restrictions on compensation of executives of a GSE receiving a
direct capital investment from the Treasury.
In early 2009, it came to light that some large
institutions that received public funds through a direct
capital investment from the Treasury under the TARP or HERA
had, while those investments remained outstanding and while
performing unsatisfactorily at an institutional level, paid
sizable bonuses to executives and other highly-compensated
employees.
Both the public and many members of Congress expressed
outrage at the idea that institutions that were depending on
public funds for their continued existence during a severe
economic downturn would provide very large bonuses and
retention payments to their executives and employees while the
public funds were still outstanding. In response to this
situation, some members of Congress expressed a desire to
address any gaps in the existing compensation restrictions
applicable to such institutions, for example by expanding
coverage to a broader group of employees, by establishing
compensation limits that would apply equally to recipients of
funds under both the TARP and HERA, and by limiting a provision
that permitted recipients of TARP assistance to make certain
bonus payments that were due under contracts that were entered
prior to February 11, 2009.
Hearings
Discussion of the payment of bonuses to American
International Group employees took place during two hearings.
First, the Subcommittee on Capital Markets, Insurance, and
Government Sponsored Enterprises held a hearing on March 18,
2009, entitled ``American International Group's Impact on the
Global Economy: Before, During and After Federal
Intervention.'' The following witnesses testified: Mr. Scott
Polakoff, Acting Director, Office of Thrift Supervision; the
Honorable Joel Ario, Insurance Commissioner, Pennsylvania
Insurance Department, on behalf of the National Association of
Insurance Commissioners; Ms. Orice M. Williams, Director,
Financial Markets and Community Investment, Government
Accountability Office; Mr. Rodney Clark, Managing Director,
Insurance Ratings, Standard & Poor's; and Mr. Edward M. Liddy,
Chairman and Chief Executive Officer, American International
Group.
Second, the Committee on Financial Services held a hearing
on March 24, 2009, entitled ``Oversight of the Federal
Government's Intervention at American International Group.''
The following witnesses testified: The Honorable Timothy F.
Geithner, Secretary of the Treasury; The Honorable Ben S.
Bernanke, Chairman, Board of Governors of the Federal Reserve
System; and Mr. William C. Dudley, President and Chief
Executive Officer, Federal Reserve Bank of New York.
Committee Consideration
The Committee on Financial Services met in open session on
March 25, 2009, and on March 26, 2009, ordered H.R. 1664, to
amend the executive compensation provisions of the Emergency
Economic Stabilization Act of 2008 to prohibit unreasonable and
excessive compensation and compensation not based on
performance standards, as amended, favorably reported to the
House by a record vote of 38 yeas and 22 nays.
Committee Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the record votes
on the motion to report legislation and amendments thereto. A
motion by Mr. Frank to report the bill, as amended, to the
House with a favorable recommendation was agreed to by a record
vote of 38 yeas and 22 nays (Record vote no. FC-9). The names
of Members voting for and against follow.
RECORD VOTE NO. FC-9
----------------------------------------------------------------------------------------------------------------
Representative Aye Nay Present Representative Aye Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank...................... X ........ ......... Mr. Bachus....... ........ X .........
Mr. Kanjorski.................. X ........ ......... Mr. Castle....... ........ ........ .........
Ms. Waters..................... ........ ........ ......... Mr. King (NY).... ........ X .........
Mrs. Maloney................... X ........ ......... Mr. Royce........ X ........ .........
Mr. Gutierrez.................. X ........ ......... Mr. Lucas........ ........ X .........
Ms. Velazquez.................. X ........ ......... Mr. Paul......... ........ X .........
Mr. Watt....................... X ........ ......... Mr. Manzullo..... ........ X .........
Mr. Ackerman................... X ........ ......... Mr. Jones........ X ........ .........
Mr. Sherman.................... X ........ ......... Mrs. Biggert..... ........ X .........
Mr. Meeks...................... X ........ ......... Mr. Miller (CA).. ........ ........ .........
Mr. Moore (KS)................. X ........ ......... Mrs. Capito...... ........ X .........
Mr. Capuano.................... X ........ ......... Mr. Hensarling... ........ X .........
Mr. Hinojosa................... ........ ........ ......... Mr. Garrett (NJ). ........ X .........
Mr. Clay....................... ........ ........ ......... Mr. Barrett (SC). ........ X .........
Mrs. McCarthy.................. X ........ ......... Mr. Gerlach...... ........ X .........
Mr. Baca....................... ........ ........ ......... Mr. Neugebauer... ........ X .........
Mr. Lynch...................... X ........ ......... Mr. Price (GA)... ........ X .........
Mr. Miller (NC)................ X ........ ......... Mr. McHenry...... ........ ........ .........
Mr. Scott...................... X ........ ......... Mr. Campbell..... ........ X .........
Mr. Green...................... X ........ ......... Mr. Putnam....... ........ X .........
Mr. Cleaver.................... X ........ ......... Mrs. Bachmann.... ........ ........ .........
Ms. Bean....................... X ........ ......... Mr. Marchant..... ........ X .........
Ms. Moore (WI)................. X ........ ......... Mr. McCotter..... ........ X .........
Mr. Hodes...................... X ........ ......... Mr. McCarthy..... ........ X .........
Mr. Ellison.................... ........ ........ ......... Mr. Posey........ ........ X .........
Mr. Klein...................... X ........ ......... Ms. Jenkins...... ........ X .........
Mr. Wilson..................... X ........ ......... Mr. Lee.......... ........ X .........
Mr. Perlmutter................. X ........ ......... Mr. Paulsen...... ........ ........ .........
Mr. Donnelly................... X ........ ......... Mr. Lance........ ........ X .........
Mr. Foster..................... X ........ .........
Mr. Carson..................... X ........ .........
Mr. Speier..................... X ........ .........
Mr. Childers................... X ........ .........
Mr. Minnick.................... X ........ .........
Mr. Adler...................... X ........ .........
Ms. Kilroy..................... X ........ .........
Mr. Driehaus................... X ........ .........
Ms. Kosmas..................... ........ ........ .........
Mr. Grayson.................... X ........ .........
Mr. Himes...................... X ........ .........
Mr. Peters..................... X ........ .........
Mr. Maffei..................... X ........ .........
----------------------------------------------------------------------------------------------------------------
During the consideration of the bill, the following
amendment was disposed of by a record vote. The names of
Members voting for and against follow:
An amendment by Mr. Miller of North Carolina, No. 2,
regarding consultation with the Chairperson of Congressional
Oversight Panel, was agreed to by a record vote of 36 yeas and
24 nays (Record vote no. FC-8):
RECORD VOTE NO. FC-8
----------------------------------------------------------------------------------------------------------------
Representative Aye Nay Present Representative Aye Nay Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank...................... X ........ ......... Mr. Bachus....... ........ X .........
Mr. Kanjorski.................. X ........ ......... Mr. Castle....... ........ ........ .........
Ms. Waters..................... ........ ........ ......... Mr. King (NY).... ........ X .........
Mrs. Maloney................... X ........ ......... Mr. Royce........ ........ X .........
Mr. Gutierrez.................. X ........ ......... Mr. Lucas........ ........ X .........
Ms. Velazquez.................. X ........ ......... Mr. Paul......... ........ X .........
Mr. Watt....................... X ........ ......... Mr. Manzullo..... ........ X .........
Mr. Ackerman................... X ........ ......... Mr. Jones........ ........ X .........
Mr. Sherman.................... X ........ ......... Mrs. Biggert..... ........ X .........
Mr. Meeks...................... X ........ ......... Mr. Miller (CA).. ........ ........ .........
Mr. Moore (KS)................. X ........ ......... Mrs. Capito...... ........ X .........
Mr. Capuano.................... X ........ ......... Mr. Hensarling... ........ X .........
Mr. Hinojosa................... ........ ........ ......... Mr. Garrett (NJ). ........ X .........
Mr. Clay....................... ........ ........ ......... Mr. Barrett (SC). ........ X .........
Mrs. McCarthy.................. X ........ ......... Mr. Gerlach...... ........ X .........
Mr. Baca....................... ........ ........ ......... Mr. Neugebauer... ........ X .........
Mr. Lynch...................... X ........ ......... Mr. Price (GA)... ........ X .........
Mr. Miller (NC)................ X ........ ......... Mr. McHenry...... ........ ........ .........
Mr. Scott...................... X ........ ......... Mr. Campbell..... ........ X .........
Mr. Green...................... X ........ ......... Mr. Putnam....... ........ X .........
Mr. Cleaver.................... X ........ ......... Mrs. Bachmann.... ........ ........ .........
Ms. Bean....................... X ........ ......... Mr. Marchant..... ........ X .........
Ms. Moore (WI)................. X ........ ......... Mr. McCotter..... ........ X .........
Mr. Hodes...................... X ........ ......... Mr. McCarthy..... ........ X .........
Mr. Ellison.................... ........ ........ ......... Mr. Posey........ ........ X .........
Mr. Klein...................... X ........ ......... Ms. Jenkins...... ........ X .........
Mr. Wilson..................... X ........ ......... Mr. Lee.......... ........ X .........
Mr. Perlmutter................. X ........ ......... Mr. Paulsen...... ........ ........ .........
Mr. Donnelly................... X ........ ......... Mr. Lance........ ........ X .........
Mr. Foster..................... X ........ .........
Mr. Carson..................... X ........ .........
Mr. Speier..................... X ........ .........
Mr. Childers................... X ........ .........
Mr. Minnick.................... X ........ .........
Mr. Adler...................... X ........ .........
Ms. Kilroy..................... X ........ .........
Mr. Driehaus................... X ........ .........
Ms. Kosmas..................... ........ ........ .........
Mr. Grayson.................... X ........ .........
Mr. Himes...................... X ........ .........
Mr. Peters..................... X ........ .........
Mr. Maffei..................... X ........ .........
----------------------------------------------------------------------------------------------------------------
The following amendments were also considered:
An amendment by Mr. Frank, No. 1, a manager's amendment,
was agreed to by a voice vote.
An amendment by Mr. Posey, No. 3, regarding a prohibition
relating to technical defaults, was offered and withdrawn.
An amendment by Mr. Sherman, No. 4, providing for a
reporting requirement, was agreed to by a voice vote.
An amendment by Mr. Sherman, No. 5, regarding unreasonable
or excessive compensation, was not agreed to by a voice vote.
An amendment by Mr. Frank, No. 6, clarifying direct capital
investment, was agreed to by a voice vote.
Committee Oversight Findings
Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the Committee held a hearing and made
findings that are reflected in this report.
Performance Goals and Objectives
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House of Representatives, the Committee establishes the
following performance related goals and objectives for this
legislation:
The purpose of this bill is to prohibit financial
institutions that receive direct capital investments under the
Troubled Asset Relief Program and institutions that receive
direct capital investments under the Housing and Economic
Recovery Act of 2008 from paying their executives and employees
(a) compensation that is unreasonable or excessive or (b)
bonuses or other supplemental payments that are not directly
based on performance-based standards for the period during
which such investments remain outstanding.
New Budget Authority, Entitlement Authority, and Tax Expenditures
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee adopts as its
own the estimate of new budget authority, entitlement
authority, or tax expenditures or revenues contained in the
cost estimate prepared by the Director of the Congressional
Budget Office pursuant to section 402 of the Congressional
Budget Act of 1974.
Committee Cost Estimate
The Committee adopts as its own the cost estimate prepared
by the Director of the Congressional Budget Office pursuant to
section 402 of the Congressional Budget Act of 1974.
Congressional Budget Office Estimate
Pursuant to clause 3(c)(3) of rule XIII of the Rules of the
House of Representatives, the following is the cost estimate
provided by the Congressional Budget Office pursuant to section
402 of the Congressional Budget Act of 1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, March 30, 2009.
Hon. Barney Frank,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 1664, a bill to
amend the executive compensation provisions of the Emergency
Economic Stabilization Act of 2008 to prohibit unreasonable and
excessive compensation and compensation not based on
performance standards.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Jeff Holland.
Sincerely,
Douglas W. Elmendorf,
Director.
Enclosure.
H.R. 1664--A bill to amend the executive compensation provisions of the
Emergency Economic Stabilization Act of 2008 to prohibit
unreasonable and excessive compensation and compensation not
based on performance standards
H.R. 1664 would add restrictions on compensation for
executives and employees of institutions receiving funds from
the Troubled Asset Relief Program (TARP) or who work for Fannie
Mae, Freddie Mac, or the Federal Home Loan Banks. Such
restrictions would prohibit bonuses or other additions to base
salary if certain standards, as determined by the Secretary of
the Treasury in conjunction with other organizations, are not
met. Financial institutions subject to the requirements of the
bill would have to report information on the compensation of
employees that receive income above certain levels. CBO
estimates that enacting H.R. 1664 would have no significant
impact on the federal budget and would not affect direct
spending or revenues.
H.R. 1664 contains no intergovernmental mandates as defined
in the Unfunded Mandates Reform Act (UMRA) and would not affect
the budgets of state, local, or tribal governments.
H.R. 1664 would impose a private-sector mandate, as defined
in UMRA, to the extent that it would invalidate existing
compensation arrangements between some financial institutions
that have received funds from the TARP and executives or
employees of those institutions. The costs of complying with
the mandate would be the value of the compensation forgone as a
result of the bill's prohibition on compensation that is
``unreasonable or excessive''. Those costs would depend in part
on the standards governing unreasonable or excessive
compensation that would be established by the Secretary.
Because of uncertainty about those standards and a lack of
information about existing compensation arrangements, CBO
cannot determine whether the cost, if any, would exceed the
annual threshold established in UMRA for private-sector
mandates ($139 million in 2009, adjusted annually for
inflation).
The CBO staff contact for this estimate is Jeff Holland.
The estimate was approved by Theresa Gullo, Deputy Assistant
Director for Budget Analysis.
Federal Mandates Statement
The Committee adopts as its own the estimate of Federal
mandates prepared by the Director of the Congressional Budget
Office pursuant to section 423 of the Unfunded Mandates Reform
Act.
Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Constitutional Authority Statement
Pursuant to clause 3(d)(1) of rule XIII of the Rules of the
House of Representatives, the Committee finds that the
Constitutional Authority of Congress to enact this legislation
is provided by Article 1, section 8, clause 1 (relating to the
general welfare of the United States) and clause 3 (relating to
the power to regulate interstate commerce).
Applicability to Legislative Branch
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of section
102(b)(3) of the Congressional Accountability Act.
Earmark Identification
H.R. 1664 does not contain any congressional earmarks,
limited tax benefits, or limited tariff benefits as defined in
clause 9 of rule XXI.
Section-by-Section Analysis of the Legislation
Section 1. Prohibition on certain compensation
Scope of coverage
This section applies to an institution that has received or
receives a direct capital investment under the TARP or HERA
during the period in which that direct capital investment
remains outstanding. An institution that has not itself
received a direct capital investment from the Treasury is not
subject to the restrictions of this section as a result of
doing business with an institution that has received a direct
capital investment, or as a result of participating in another
TARP-related program that involves an interaction with an
institution that has received a direct capital investment.
Subsection (a)--Prohibition on certain compensation not
based on performance standards
This subsection amends section 111 of EESA (12 U.S.C. 5221)
to add a new subsection (e) that would prohibit certain
compensation that is not based on performance standards
established the Treasury Secretary and require institutions
subject to these prohibitions to report certain compensation
data to the Treasury Secretary annually.
Specifically, new subsection (e)(1) would add restrictions
that would apply broadly to all executives and employees of an
institution that has received a direct capital investment from
the Treasury under the TARP or HERA while that investment
remains outstanding. Regardless of when a compensation payment
arrangement was entered into, an institution subject to this
provision would be prohibited from:
paying any compensation that is
``unreasonable or excessive,'' as defined in standards
established by the Treasury Secretary; or
paying any bonus or other supplemental
payment that is not directly based on performance-based
measures set forth in standards establish by the
Treasury Secretary.
These restrictions do not apply to a longevity bonus or a
payment in the form of restricted stock.
New subsection (e)(2) would require the Treasury Secretary
to establish the unreasonable-or-excessive and performance-
based bonus standards that apply for purposes of paragraph
(e)(1) within 30 days of the bill's enactment. In so doing, he
would be required to consult with the Chairperson of the
Congressional Oversight Panel and obtain approval of the
agencies that are members of the Federal Financial Institutions
Examination Council.
New subsection (e)(3) would require an institution that is
subject to subsection (e) to submit an annual report to the
Treasury Secretary stating how many executives and employees
received or will receive total compensation that exceeds
specified dollar amounts during the fiscal year. This provision
does not require reporting of individual compensation data, but
rather requires reporting only of the aggregate number of
individuals who received total compensation exceeding the
specified dollar amounts. The Secretary shall make such reports
available on the Internet.
Subsection (b)--Revision to rule of construction
This subsection revises the rule of construction in section
111(b)(3)(D)(iii) of EESA (12 U.S.C. 5221(b)(3)(D)(iii)) in a
manner that would broaden the application of the existing
restrictions on bonuses, retention awards, and incentive
compensation for highly-compensated employees, which are set
forth in section 111(b)(3)(D). Specifically, this subsection
would provide that these restrictions, which were added to EESA
by Title VII of ARRA, would apply to an institution that has
received a direct capital investment under the TARP while such
investment remained outstanding, without regard to when the
arrangement to pay such compensation was entered into.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italics, existing law in which no change
is proposed is shown in roman):
EMERGENCY ECONOMIC STABILIZATION ACT OF 2008
DIVISION A--EMERGENCY ECONOMIC STABILIZATION
* * * * * * *
TITLE I--TROUBLED ASSETS RELIEF PROGRAM
* * * * * * *
SEC. 111. EXECUTIVE COMPENSATION AND CORPORATE GOVERNANCE.
(a) * * *
(b) Executive Compensation and Corporate Governance.--
(1) * * *
* * * * * * *
(3) Specific requirements.--The standards established
under paragraph (2) shall include the following:
(A) * * *
* * * * * * *
(D)(i) * * *
* * * * * * *
(iii) The prohibition required under clause
(i) shall not be construed to prohibit any
bonus payment required to be paid pursuant to a
written employment contract executed on or
before February 11, 2009, as such valid
employment contracts are determined by the
Secretary or the designee of the Secretary,
except that an entity subject to subsection (e)
may not, while a capital investment described
in that subsection remains outstanding, pay a
bonus or other supplemental payment that is
otherwise prohibited by clause (i) without
regard to when the arrangement to pay such a
bonus was entered into.
* * * * * * *
(e) Prohibition on Certain Compensation Not Based on
Performance Standards.--
(1) Prohibition.--No financial institution that has
received or receives a direct capital investment under
the Troubled Assets Relief Program under this title, or
with respect to the Federal National Mortgage
Association, the Federal Home Loan Mortgage
Corporation, or a Federal home loan bank, under the
amendments made by section 1117 of the Housing and
Economic Recovery Act of 2008, may, while that capital
investment remains outstanding, make a compensation
payment, other than a longevity bonus or a payment in
the form of restricted stock, to any executive or
employee under any existing compensation arrangement,
or enter into a new compensation payment arrangement,
if such compensation payment or compensation payment
arrangement--
(A) provides for compensation that is
unreasonable or excessive, as defined in
standards established by the Secretary, in
consultation with the Chairperson of the
Congressional Oversight Panel established under
section 125, in accordance with paragraph (2);
or
(B) includes any bonus or other supplemental
payment that is not directly based on
performance-based measures set forth in
standards established by the Secretary in
accordance with paragraph (2).
Provided that, nothing in this paragraph applies to an
institution that did business with a recipient of a
direct capital investment under the TARP.
(2) Standards.--Not later than 30 days after the date
of enactment of this subsection, the Secretary, with
the approval of the agencies that are members of the
Federal Financial Institutions Examination Council, and
in consultation with the Chairperson of the
Congressional Oversight Panel established under section
125, shall establish the following:
(A) Unreasonable and excessive compensation
standards.--Standards that define
``unreasonable or excessive'' for purposes of
subparagraph (1)(A).
(B) Performance-based standards.--Standards
for performance-based measures that a financial
institution must apply when determining whether
it may provide a bonus or retention payment
under paragraph (1)(B). Such performance
measures shall include--
(i) the stability of the financial
institution and its ability to repay or
begin repaying the United States for
any capital investment received under
this title;
(ii) the performance of the
individual executive or employee to
whom the payment relates;
(iii) adherence by executives and
employees to appropriate risk
management requirements; and
(iv) other standards which provide
greater accountability to shareholders
and taxpayers.
(3) Reporting requirement.--
(A) In general.--Any financial institution
that is subject to the requirements of
paragraph (1) shall, not later than 90 days
after the date of enactment of this subsection
and annually on March 31 each year thereafter,
transmit to the Secretary, who shall make a
report which states how many persons (officers,
directors, and employees) received or will
receive total compensation in that fiscal year
in each of the following amounts:
(i) over $500,000;
(ii) over $1,000,000;
(iii) over $2,000,000;
(iv) over $3,000,000; and
(v) over $5,000,000.
The report shall distinguish amounts the
institution considers to be a bonus and the
reason for such distinction. The name or
identity of persons receiving compensation in
such amounts shall not be required in such
reports. The Secretary shall make such reports
available on the Internet. Any financial
institution subject to this paragraph shall
issue a retrospective annual report for 2008
and both a prospective and retrospective annual
report for each subsequent calendar year until
such institution ceases to be subject to this
paragraph.
(B) Total compensation defined.--For purposes
of this paragraph, the term ``total
compensation'' includes all cash payments
(including without limitation salary, bonus,
retention payments), all transfers of property,
stock options, sales of stock, and all
contributions by the company (or its
affiliates) for that person's benefit.
[(e)] (f) Shareholder Approval of Executive Compensation.--
(1) * * *
* * * * * * *
[(f)] (g) Review of Prior Payments to Executives.--
(1) * * *
* * * * * * *
[(g)] (h) No Impediment to Withdrawal by TARP Recipients.--
Subject to consultation with the appropriate Federal banking
agency (as that term is defined in section 3 of the Federal
Deposit Insurance Act), if any, the Secretary shall permit a
TARP recipient to repay any assistance previously provided
under the TARP to such financial institution, without regard to
whether the financial institution has replaced such funds from
any other source or to any waiting period, and when such
assistance is repaid, the Secretary shall liquidate warrants
associated with such assistance at the current market price.
[(h)] (i) Regulations.--The Secretary shall promulgate
regulations to implement this section.
* * * * * * *
DISSENTING VIEWS
H.R. 1664 amends the Emergency Economic Stabilization Act
of 2008 (EESA) to prohibit any recipient of a ``capital
investment'' by the Federal government under the Troubled Asset
Relief Program (TARP) or the Housing and Economic Recovery Act
of 2008 (HERA), including Fannie Mae, Freddie Mac, and the
Federal Home Loan Banks, from making any compensation payments
that are ``unreasonable or excessive,'' and any bonus payment
that is not ``performance-based,'' so long as such an
investment is outstanding. The bill would prohibit any such
payments to any executive or employee under any existing or
future compensation arrangement. It gives the Secretary of the
Treasury the authority, in consultation with the Chairperson of
the TARP Congressional Oversight Panel and with the approval of
the financial regulatory agencies that comprise the Federal
Financial Institutions Examination Council (FFIEC), to define
what constitutes ``unreasonable or excessive'' compensation and
to establish ``performance-based'' measures for bonuses. In
addition, the bill essentially repeals the so-called ``Dodd
amendment'' contained in the economic stimulus bill, so that
bonus restrictions imposed on TARP recipients apply regardless
of the date on which the bonus agreement was entered into.
House Republicans strongly object to excessive compensation
and bonuses paid to executives of firms that have received
taxpayer dollars, particularly those, like the American
International Group (AIG), that will almost certainly never be
able to pay a large portion of that money back. The recent
revelations that the Democratic administration and Democratic
Congress inserted language in the stimulus bill insulating from
legal challenge some $165 million in bonuses paid to executives
at AIG, whose failure has cost taxpayers $173 billion, have
provoked justifiable public outrage. H.R. 1664 is an effort to
cover the Democratic Majority's tracks, and ``change the
subject'' from the administration's failure to exercise
adequate oversight of the taxpayer dollars expended to prop up
AIG.
While many House Republicans did not support the
establishment of the Troubled Asset Relief Program--and most
voted to disapprove release of the second $350 billion tranche
of the TARP funds--it is now Congress' responsibility to ensure
that the program works as effectively as possible and that the
taxpayers' investment is returned as quickly as possible.
Unfortunately, this overly broad and punitive legislation will
work at cross-purposes with that objective. The success of the
taxpayer-subsidized public-private partnerships created by the
Obama administration to purge toxic assets from banks' balance
sheets hinges almost entirely on the willingness of the private
sector to invest its capital alongside the government. As
drafted, H.R. 1664's executive compensation restrictions would
not extend to these private sector investors. However, the
legislation does send an unmistakable message to financial
institutions considering whether to enter into partnership with
the government that Congress can and will change the rules of
the game at any time. This will inevitably discourage
participation in a program that the Obama administration has
characterized as essential to stabilizing the financial system.
During consideration of H.R. 1664, the Committee adopted on
a straight party-line vote an amendment offered by Rep. Brad
Miller (D-NC) requiring the Secretary of the Treasury to
consult with the Chair of the TARP Congressional Oversight
Panel (COP) in determining what constitutes unreasonable or
excessive compensation and performance-based compensation
measures. Given its limited mandate, the Congressional
Oversight Panel has no expertise on the issue of executive
compensation, no expertise on the subject of corporate
governance, and no formal legal standing even to issue
recommendations on policy questions. As its name might
indicate, the Congressional Oversight Panel is strictly an
oversight panel, and it was never intended nor is it authorized
to set policy. Even overlooking the statutory limitations on
the Panel from the EESA, the fact remains that the
Congressional Oversight Panel has not conducted a single public
hearing on compensation that might have given it any particular
insight on the subject. Moreover, the Miller Amendment poses a
clear conflict of interest for the Congressional Oversight
Panel. By requiring the Chair of the Panel to have a
consultative role with the Secretary on TARP decisions related
to compensation, the line between decision makers and oversight
authorities will be impossibly blurred, potentially calling
into question the reliability of any future oversight work the
Panel might ultimately conduct on executive compensation
matters.
The easy solution throughout the recent period of financial
turmoil has been to hand the taxpayer the bill for rescuing
``too big to fail'' financial institutions without evaluating
the long-term consequences. Rather than projecting the Federal
government further and further into the private economy, we
should, instead, formalize and execute a responsible exit
strategy that ensures taxpayers are repaid. The best approach
to protecting the taxpayers' investment in private business is
through stronger oversight and accountability, not by further
entrenching government in the operations and management of
hundreds of businesses across America, many of which are
community and regional banks that did nothing to create the
current crisis. Indeed, given the government's track record in
piling up huge deficits and mismanaging a wide range of Federal
programs, there is little reason to believe that it will have
any more success in running private enterprises.
Spencer Bachus.
Randy Neugebauer.
Donald Manzullo.
Peter King.
Scott Garrett.
Bill Posey.
Christopher Lee.