[Federal Register Volume 59, Number 140 (Friday, July 22, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-17906]


[[Page Unknown]]

[Federal Register: July 22, 1994]


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FARM CREDIT ADMINISTRATION
12 CFR Parts 611, 618, and 620

RIN 3052-AB42

 

Organization; General Provisions; Disclosure to Shareholders

AGENCY: Farm Credit Administration.

ACTION: Final rule.

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SUMMARY: The Farm Credit Administration (FCA), by the Farm Credit 
Administration Board (Board), adopts a final rule concerning director 
and senior officer compensation. The regulation amends the director 
compensation regulations to reflect changes to the Farm Credit Act of 
1971 (Act) made by the Farm Credit Banks and Associations Safety and 
Soundness Act of 1992 (1992 Amendments),1 and amends the annual 
report disclosure rules for director reimbursable expenses to address 
concerns raised by Farm Credit banks regarding the equity and 
regulatory burden of the existing rule. Additionally, the rule amends 
the disclosure requirements for senior officer compensation to make the 
disclosures more informative and useful to shareholders.

    \1\Pub. L. 102-552, 106 Stat. 4102
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EFFECTIVE DATE: The regulation shall become effective upon expiration 
of 30 days after publication in the Federal Register during which 
either or both Houses of Congress are in session. Notice of effective 
date will be published in the Federal Register.

FOR FURTHER INFORMATION CONTACT:

Laurie A. Rea, Policy Analyst, Regulation Development, Office of 
Examination, Farm Credit Administration, McLean, VA 22102-5090, (703) 
883-4498, TDD (703) 883-4444, or
Joy E. Strickland, Senior Attorney, Regulatory Operations Division, 
Office of General Counsel, Farm Credit Administration, McLean, VA 
22102-5090, (703) 883-4020, TDD (703) 883-4444.

SUPPLEMENTARY INFORMATION:

1. Overview

    The FCA published a proposed rule concerning director and senior 
officer compensation and reimbursable expense disclosures on December 
23, 1993 (58 FR 68069). The comment period closed January 24, 1994.
    Section 611.400, concerning bank director compensation, is adopted 
substantially as proposed with the exception that the cap on the amount 
by which the FCA Board would consider waiving the statutory limitation 
on bank director compensation for exceptional circumstances has been 
increased from 25 to 30 percent. Section 618.8270, regarding the 
reimbursement of travel, subsistence, and related expenses, has been 
modified by reducing several of the policy and procedure requirements 
originally proposed. The final rule retains the requirement that each 
Farm Credit System (FCS or System) institution develop a written policy 
regarding the reimbursement of travel, subsistence, and other related 
expenses to its directors, officers, and employees and provide 
stockholders with a brief description of the policy. Substantial 
changes have been made to the proposed senior officer compensation 
disclosure requirements in Sec. 620.5(i)(2). The final rule requires 
FCS institutions to disclose: (1) Individual compensation information 
of chief executive officers (CEOs) whose annualized salary and bonus 
exceed $150,000, adjusted annually to reflect changes in the Consumer 
Price Index (CPI); and (2) aggregate compensation information of all 
senior officers as a group. Both the CEO and aggregate senior officer 
compensation information is required to be reported for each of the 
last 3 fiscal years and presented in a Summary Compensation Table. The 
final rule retains the requirement that the institutions provide a 
discussion of compensation plans. Finally, a provision was added to 
allow associations the option of disclosing senior officer compensation 
information in either the Association Annual Meeting Information 
Statement or the annual report.

II. Response to Comments

    The FCA received 140 comment letters from the Farm Credit Council 
(FCC) on behalf of its membership, 7 Farm Credit Banks, 3 Banks for 
Cooperatives, 122 associations, and 7 shareholders. Commenters 
expressed strong opposition to the proposed disclosure of individual 
compensation information for each of the five most highly paid senior 
officers. The following discussion focuses on the FCA response to 
commenters' concerns regarding the proposed senior officer disclosures 
as this was the predominant issue raised in their letters. The section-
by-section discussion also addresses other comments received on the 
proposed rule.

A. Basis for Senior Officer Compensation Disclosures

    Commenters stated that FCS institutions are not parallel to 
commercial banks or thrifts, or analogous to other Government-sponsored 
enterprises (GSEs). Therefore, commenters adamantly believe that FCS 
institutions should not be required to make similar executive 
compensation disclosures. Commenters stressed four main points in 
support of their position. First, the compensation disclosure 
requirements for commercial banks, national banks, thrift institutions, 
and state member banks are applicable only to financial institutions 
subject to the registration requirements of section 12(b) or (g) of the 
Securities Exchange Act of 1934 (1934 Act).2 Second, equity 
securities in FCS institutions are owned only by borrowing members of 
the institutions, not purchased primarily for investment, and not 
publicly traded. Thus, the investor concerns addressed by the 1934 Act 
are not present in the case of FCS institutions. Third, although 
formally exempt from the registration requirements of the 1934 Act, 
other GSEs report as if they were subject to Securities and Exchange 
Commission (SEC) statutes, in part, because their securities are 
subject to the listing requirements of the New York Stock Exchange. 
Fourth, the disclosures provide limited benefits to investors in FCS 
debt obligations because the banks are jointly and severally liable on 
these obligations. Consequently, investors generally rely on the 
strength of the System as a whole. Rather, commenters contend it would 
be more appropriate, in their judgment, for the FCA to compare the 
treatment of FCS institutions under the proposed rule to Federal Home 
Loan Banks (FHLBs) and credit unions, as the ownership structures of 
those entities more closely parallel those of the FCS banks and direct 
lender associations. Unlike commercial banks and thrifts, credit unions 
and FHLBs are not subject to executive compensation disclosures.
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    \2\Public companies with at least 500 shareholders of record and 
assets of at least $5,000,000 must register with the SEC pursuant to 
SEC regulations implementing the Securities Exchange Act of 1934.
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    The FCA agrees with commenters that a comparison of ownership 
structures between FCS institutions and credit unions and FHLBs has 
some validity, and that FCS institutions are notably different from 
commercial banks, thrifts and other GSEs. Nevertheless, the FCA did not 
intend to imply or draw a direct parallel between FCS institutions and 
any other type of financial institution or to use a comparison between 
the institutions as the sole basis for establishing or modifying the 
senior officer compensation disclosure requirements. The primary 
comparison being made was that the FCA's proposed compensation 
disclosure requirements were similar in many respects to those imposed 
on commercial banks and thrifts by other regulators. As stated in the 
proposed rule, the FCA believes that more detailed compensation 
disclosures, such as those imposed by the SEC, would satisfy the 
objectives of section 514 of the Act,\3\ and the proposed disclosures 
would benefit FCS shareholders by providing them with senior officer 
compensation information that was comparable to that available to 
shareholders of other financial institutions. The proposed disclosure 
requirements were still, however, markedly less extensive than those 
established by the SEC, partly due to the many differences between 
commercial banks and FCS institutions. The final regulations deviate 
further from the SEC's compensation disclosure requirements in 
consideration of the uniqueness of the FCS institutions. For example, 
the $100,000 compensation threshold established by the SEC for 
individual senior officer compensation disclosure was one area where 
the FCA chose to differ. Instead, the FCA decided to adopt a $150,000 
compensation disclosure threshold that applies only to FCS institution 
CEOs.
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    \3\The stated objective of section 514 is ``to ensure that 
information reported by directors, officers, and employees of Farm 
Credit System institutions under regulations of the Farm Credit 
Administration requiring the disclosure of financial information and 
reporting of potential conflicts of interests--(1) provides the 
stockholders of all Farm Credit System institutions with information 
to assist the stockholders in making informed decisions regarding 
the operations of the institutions; (2) provides investors and 
potential investors with information necessary to make investment 
decisions regarding Farm Credit System obligations or institutions; 
and (3) provides the Farm Credit Administration with information 
necessary to allow the Farm Credit Administration to effectively and 
efficiently examine and regulate all Farm Credit System institutions 
and thus enhance the safety and soundness of the System.''
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    The FCA's rationale for requiring director and senior officer 
compensation disclosures stems primarily from the ``at-risk'' nature of 
the stock and the significant number and wide distribution of 
shareholders, which are similar attributes to those of financial 
institutions with publicly traded stock. In terms of assets, the size 
of many FCS institutions is comparable to, and sometimes greater than, 
financial institutions whose equity and debt securities are widely held 
by the public. In addition, even if commenters are correct in their 
assertion that investors of FCS debt obligations are more concerned 
with the System as a whole, the FCA believes that the investor concerns 
addressed by the 1934 Act are not completely absent as suggested by 
commenters. Regardless of their motivation for purchasing the stock, 
borrowers make a financial investment in FCS institutions and obtain 
the right to participate in the affairs of those institutions. 
Shareholders can potentially benefit from their investment in terms of 
dividends and patronage refunds. Thus, shareholders need sufficient 
information to make intelligent decisions about the management and 
operation of the institutions in which they have invested and to hold 
directors and management accountable for their actions.
    The FCA stated in the preamble to the shareholder disclosure 
regulations published on June 12, 1986 (51 FR 21337) that while not all 
FCS institutions would meet the test for public companies, many of them 
have in excess of 500 shareholders, and the number of institutions with 
fewer than 500 shareholders continues to decline in conjunction with 
the trend toward mergers. Further, the FCA stated that while the stock 
is not publicly traded on the secondary market, it is held by over 
900,000 individuals and business entities that have a common interest 
in the financial and operating information of the institutions. The FCA 
Board continues to believe that the distinction between holding stock 
for investment and holding stock for doing business with an institution 
does not have a material bearing on the right of shareholders to have 
access to information in order to make informed decisions. Therefore, 
the final compensation disclosure requirements continue to place CEOs 
of FCS institutions with a significant amount of assets and number of 
shareholders under the same scrutiny as CEOs of financial institutions 
with publicly traded stock subject to the registration requirements of 
the 1934 Act.

B. Section 514 of the 1992 Amendments

    The FCA agrees with the commenters that section 514 is quite broad 
and its interpretation, as it applies to compensation disclosures, is a 
matter of the FCA's discretion. Commenters stated that nothing in 
section 514 of the 1992 Amendments compels the disclosure of 
individualized senior officer compensation or concludes that the 
current disclosure requirements are inadequate in any respect. They 
felt strongly that the existing disclosure of senior officer 
compensation in the aggregate, coupled with the requirement that 
shareholders may request the individual compensation of any senior 
officer, or any other individual included in the aggregate whose 
compensation exceeds $50,000, was adequate.
    There was no intention in the proposed rule to suggest that section 
514 mandates individual disclosure of senior officer compensation. In 
section 514, Congress stressed the importance of disclosure of 
compensation paid to, loans made to, and transactions made with FCS 
institutions by directors and senior officers of the institution. 
Congress also directed the FCA to review its regulations to ensure that 
they meet the purpose of the section and applicable laws, but did not 
prescribe any specific regulation amendments. After reviewing its 
regulations, the FCA concluded that more detailed senior officer 
compensation disclosures satisfied the spirit and intent of section 
514.

C. Board Accountability

    Commenters expressed concern that providing individual compensation 
information would undermine the board's authority and its ability to 
effectively administer the institution's salary administration program. 
Further, commenters asserted that the disclosure rule would dilute the 
board's responsibility and shift the oversight responsibility from the 
board of directors to the shareholders as a whole.
    The FCA Board disagrees that disclosure of information undermines 
board accountability and responsibility. In fact, disclosure of senior 
officer compensation is intended to promote board accountability to 
shareholders rather than shift board responsibility to shareholders. 
The objective of this type of disclosure is to provide shareholders 
with information to assess whether senior officer compensation is 
appropriate in view of the institution's financial condition and 
performance and to hold the board accountable for maintaining a 
reasonable rationale for the level of compensation paid to its senior 
officers.

D. Invasion of Privacy

    Although numerous reasons were cited in opposition to 
individualized compensation disclosure, no other issue generated the 
intense reaction created by concerns of ``invasion of privacy.'' 
Respondents were highly concerned that the disclosure of potentially 
sensitive information in a public format, such as the annual report, 
would cause considerable staff dissension and would render management 
unable to effectively administer the institutions' salary programs. One 
commenter stated that disclosure of the individual salaries of the five 
highest paid senior officers will, more than likely, cause salaries to 
gravitate to the highest paid levels in order to maintain morale rather 
than ``limit'' compensation paid to senior officers. Several commenters 
expressed concern that the disclosures may cause employee flight. 
Additionally, some FCS associations were concerned that the individual 
compensation disclosures may inadvertently reach the branch officer 
level.
    The FCA recognizes that internal conflict may be generated when the 
information presented is used by parties for purposes for which they 
were not intended, such as a means for co-workers to compare salaries 
or to use as a bargaining tool for salary negotiations. The FCA also 
believes, however, that management is ultimately responsible for 
maintaining employee morale and retaining competent staff through fair 
and reasonable compensation, and for communicating to staff how this is 
accomplished through the salary administration program. A primary 
aspect of the disclosures is to provide shareholders insight regarding 
the methodology and basis the boards use to determine what they 
consider to be ``fair and reasonable'' compensation, rather than to 
``limit'' senior officer compensation as suggested by a commenter. 
Further, the FCA believes stockholders have valid reasons to have this 
type of information readily available to them and they should not be 
penalized because of the potential for internal conflicts.
    Many commenters were opposed to the proposed disclosures because 
FCS institution annual reports are used as marketing tools, among other 
things, and made available to a wide spectrum of interested parties. 
Some commenters believed that the broad distribution of the reports 
could promote animosity among shareholders and employees throughout the 
FCS and possibly other members of rural communities. Several commenters 
also stated that in order to evaluate the reasonableness of individual 
senior officer compensation, shareholders would need to understand 
several key aspects of the employer/employee relationship, such as the 
experience and knowledge an employee brings to his/her job, 
geographical cost-of-living data, market compensation for similar 
positions, job responsibilities, and the competitive and regulatory 
environment in which the employee operates. Commenters also asserted 
that providing just a dollar amount of compensation, without any other 
relevant data, would be interpreted by the readers of the annual report 
in terms of their own frame of reference. This could easily lead to 
confusion and ill feelings among employees and shareholders because 
they are not provided with all the facts involved in determining an 
individual's compensation.
    The FCA disagrees that shareholders would be unable to understand 
and assess the senior officer compensation disclosures. In addition to 
reporting ``dollar amounts'' of compensation paid, institutions are 
required to provide a discussion of the compensation plans to aid the 
reader's understanding of the disclosures. Moreover, nothing in the 
regulations prevents an institution from providing explanations of the 
market or any other factors used in the determination of compensation. 
Management always has the discretion to provide such explanations if 
they feel they are needed to fairly portray the amounts being paid to 
senior officers.
    The FCA Board recognizes that it should, to the extent possible, 
balance shareholders' needs to receive meaningful information 
concerning their institutions and individual privacy concerns. As 
expressed in the FCA Board's Policy Statement on Regulatory Philosophy, 
``The FCA Board is mindful that most regulatory activities will involve 
competing considerations and is committed to considering and weighing 
those competing considerations and arriving at thoughtful regulatory 
judgments''. (Published June 22, 1994 at 59 FR 32189) Therefore, in 
reaching a balance between the competing considerations regarding the 
proposed regulation, substantial modifications were made to the senior 
officer disclosure requirements and are more fully explained in the 
section-by-section discussion.

III. Section-by-Section Discussion

A. Section 611.400--Compensation of Bank Board Members

    The commenters generally expressed support for proposed 
Sec. 611.400, Bank Director Compensation. The FCC stated that the 
proposed procedure for adjusting the bank directors' compensation 
ceiling and the approval process for exceeding the statutory limitation 
in ``exceptional circumstances'' seemed to be both fair and well-
considered.
    The FCA is adopting the amendments to Sec. 611.400 as proposed with 
two modifications. The proposed rule included a 25-percent cap on the 
amount by which the FCA Board would approve a waiver of the statutory 
limitation on bank director compensation. The FCA received two requests 
for waivers of the statutory limitation since publishing the proposed 
rule. Based on its operational experience in reviewing those requests, 
the FCA Board determined that a 30-percent cap on the amount by which 
it would approve waivers of the statutory limitation would be more 
appropriate. In addition, the requirement in proposed 
Sec. 611.400(c)(3) that the FCA respond to requests for waivers of the 
statutory limitation within 30 days was modified by extending the 
agency's self-imposed response time to 60 days. The FCA will respond to 
requests for waivers as quickly as possible and anticipates replying to 
the vast majority of requests in well under 60 days. Nevertheless, 
there may be unusual circumstances that would necessitate a longer 
period to gather and analyze pertinent information related to the 
request, and the longer response period should reduce the frequency of 
formal extensions of the response period.
    The FCA recognizes the difficulty in predicting all the exceptional 
circumstances under which a bank may desire to seek a waiver of the 
statutory limitation on bank director compensation. Therefore, the FCA 
would like to clarify that Sec. 611.400(d)(3), pertaining to a bank's 
policy on bank director compensation, need only address exceptional 
circumstances that the bank's board is able to identify. The policy 
should also include a procedure for evaluating, on a case-by-case 
basis, other extraordinary circumstances that may arise where the 
bank's board would consider seeking a waiver of the limitation.

B. Section 618.8270--Travel, Subsistence, and Other Related Expenses

    Commenters generally supported proposed Sec. 618.8270, but 
challenged whether the level of detail in policy and procedure 
requirements was necessary. The FCC commended the FCA Board for its 
openmindedness and willingness to reconsider the existing requirement 
for individual disclosure of bank director reimbursable expenses and 
replace it with an aggregate disclosure requirement. The FCC and other 
commenters stated that while it is quite appropriate for the FCA to 
require each FCS institution's board to develop written policies 
concerning the reimbursement of travel, subsistence, and other related 
expenses, the details of such policies should be left to each board's 
discretion. In their judgment, the degree of detail spelled out in 
proposed Sec. 618.8270(a) constitutes micro-management, which they 
believed the current FCA Board was seeking to remove from the 
regulations. Another commenter responded that the administrative burden 
created by the detailed policy requirements, documentation, reporting, 
and auditing is not supported by the value, if any, that would be added 
to the stockholder disclosure process.
    In February 1994, subsequent to publication of the proposed 
regulations, the FCA Board adopted the previously mentioned Policy 
Statement on Regulatory Philosophy (59 FR 32189, June 22, 1994) that 
stated ``It is the FCA Board's philosophy to promulgate regulations 
that are necessary to implement the law and to promote the safety and 
soundness of the Farm Credit System.'' One method cited for achieving 
the FCA Board's regulatory objective was to issue regulations, to the 
extent feasible, that specify performance criteria and objectives 
rather than operational methods for achieving its purposes. In light of 
this recently adopted position, the FCA reevaluated proposed 
Sec. 618.8270 and made modifications accordingly.
    The examples of guidelines and limitations that an institution may 
consider addressing in their travel policy (i.e., modes of 
transportation; mileage rates for use of personal vehicles and per diem 
allowances, including maximum or limitations on lodging, meals and 
incidental expenses; and telephone calls and any other miscellaneous 
expenses) were eliminated from the final rule. The examples cited in 
proposed Sec. 618.8270(a)(2)(i) through (iv) were removed because many 
commenters interpreted them as mandatory regulatory requirements. 
However, the FCA Board continues to believe that the management of each 
FCS institution should determine to what extent the individual items 
cited as sample guidelines and limitations in the proposed rule are 
necessary to ensure that the reimbursement of expenses for directors, 
officers, and employees is reasonable and well-justified.
    Certain aspects of proposed Sec. 618.8270 that incorporated, in 
part, procedures from existing Sec. 611.400(b) and (c) were eliminated 
from the final rule. The FCA Board believes that such detailed 
operating procedures should remain at the discretion of each FCS 
institution's management rather than be formally prescribed by 
regulations. Therefore, all of the procedures in proposed 
Sec. 618.8270(a)(3) and (4) were removed and the basic requirement for 
maintaining written records of expense reimbursements was assimilated 
into final Sec. 618.8270(a).
    One commenter recommended that the last sentence in 
Sec. 618.8270(b) referring to ``the personnel authorized to process 
reimbursements,'' be amended by substituting ``approve'' for 
``process.'' The commenter asserted that the persons who normally 
process reimbursements are accounting clerks, and stated that it is not 
usually part of their function to attempt to determine whether expenses 
are appropriate. In an effort to clarify the regulation, the last 
sentence was stricken from the final rule.
    Two commenters misinterpreted proposed Sec. 618.8270(c) to require 
that an internal auditor review every expense claim and record. The FCA 
has clarified that the regulation only requires an internal auditor to 
determine whether the institution's policies and procedures are being 
consistently followed by testing the reimbursement process through a 
sampling of expense claims and records. The final rule reads that 
``Each board shall require a review by the institution's internal 
auditor (or person designated by the board) of at least a sampling of 
records maintained * * *.'' Furthermore, the requirement for an 
internal audit review of travel records is now contained in 
Sec. 618.8270(b) in the final rule.

C. Section 620.5(i)--Compensation of Directors and Senior Officers

1. Director compensation
    The disclosure requirements in the final regulation remain 
unchanged from the proposed regulation.
2. Senior officer compensation
    The senior officer compensation disclosure requirements were 
substantially changed in the final regulation. As previously discussed, 
the modifications were made because the FCA Board considered it 
important to balance commenters' privacy concerns with the 
shareholders' need for access to pertinent information regarding their 
institutions, and to further reflect the unique attributes of FCS 
institutions in the regulations. In addition, technical and clarifying 
changes were made to improve the understanding of the requirements and 
enhance the consistency of the disclosures presented to shareholders.
    An alternative means for associations to disseminate senior officer 
compensation information was added to the final rule. Many commenters 
asserted that the disclosure of compensation information is more 
appropriate for a proxy statement. To address this issue, final 
Sec. 620.5(i)(2) permits associations to disclose senior officer 
compensation information in either the Association Annual Meeting 
Information Statement (AAMIS) or the annual report. By allowing 
associations to disclose compensation information in the AAMIS, the FCA 
Board aims to reduce the concern of wide distribution of potentially 
sensitive information in a public format. Currently, there is no other 
disclosure medium for banks that serves a similar purpose as the AAMIS. 
Thus, the banks would continue to publish senior officer compensation 
in the annual report.
    The final rule limits the requirement for disclosure of individual 
compensation information to FCS institution CEOs. Proposed 
Sec. 620.5(i)(2)(i), which would have required institutions to make 
individual compensation disclosure for each of the five highest 
compensated senior officers, was dropped from the final rule. Final 
Sec. 620.5(i)(2)(i)(A) requires FCS institutions to report the total 
compensation and the amount of each component of compensation paid to 
the institution's CEO for each of the last 3 completed fiscal years. If 
more than one person served in the capacity of CEO during any given 
fiscal year, individual compensation information must be reported for 
each CEO. However, no disclosure need be provided for any CEO whose 
salary and bonus (or annualized salary and bonus, if the CEO served in 
that capacity less than a year) do not exceed $150,000, adjusted 
annually to reflect changes in the Consumer Price Index (CPI) for all 
urban consumers. The 1994 calendar year will serve as the base year for 
making subsequent CPI adjustments to the $150,000 disclosure threshold.
    Proposed Sec. 620.5(i)(2)(ii), which would have required FCS 
institutions to report the aggregate amount of compensation and the 
components of compensation paid to all officers as a group, was revised 
in the final regulation. The FCA did not perceive the proposed 
requirement as markedly different from the existing aggregate senior 
officer compensation disclosure requirement. Yet, several commenters 
interpreted the requirement to be more extensive. The FCA decided to 
retain the language in the existing rule with some modifications to 
reduce any ambiguity that may have been raised by the proposed 
requirement. Final Sec. 620.5(i)(2)(i)(B) requires institutions to 
report the aggregate amount of compensation and the components of 
compensation paid during each of the last 3 completed fiscal years to 
all senior officers as a group, stating the number of officers in the 
group without naming them. As with the existing regulation, at a 
minimum, institutions must disclose the aggregate amount of 
compensation paid to the five most highly compensated officers, whether 
or not designated as a senior officer by the board.
    A requirement for preparation of a ``Summary Compensation Table'' 
(table) was added to the final regulation to enhance the comparability 
of the compensation disclosures. Commenters indicated there was a need 
to improve the consistency of reporting compensation information and 
suggested the regulations stipulate a format for disclosure. In 
response, the general definition of ``compensation'' was eliminated and 
replaced by the more descriptive table and corresponding instructions. 
For purposes of reporting compensation information in the table, 
compensation is divided into two main categories: (1) ``Annual;'' and 
(2) ``Other.'' The separation is to distinguish normal annual 
compensation from compensation that is unusual, infrequent, reflects 
special circumstances, or is earned during the fiscal year but is not 
usually available to the senior officer until a later date.
    The components of ``Annual'' compensation include salary, bonuses, 
deferred compensation and perquisites. Amounts shown as ``salary'' and 
``bonus'' are to reflect the gross amounts earned during the fiscal 
year before any reductions for amounts contributed during the fiscal 
year to a 401(k) plan or similar plan. If, for any reason, the exact 
amount of salary or bonus earned in the fiscal year is not expected to 
be known in time for its inclusion in the report, the institution is to 
include in the report its best estimate of the compensation amount and 
provide appropriate footnote disclosure with the table. Amounts shown 
as ``deferred/perquisites'' will include such items as deferred 
compensation, perquisites, and any other significant personal benefits 
customarily paid, earned or received on an annual basis. With respect 
to deferred compensation, this amount should reflect all forms of 
deferred compensation earned during the fiscal year, whether or not 
paid in cash. For example, if the deferred compensation was earned 
during the period but payment in cash was voluntarily deferred by the 
senior officer to a later period (e.g., upon retirement) the amount 
earned must still be included in the current period's compensation 
amount. Consequently, cash payments under deferred compensation 
arrangements where the amounts were earned in previous periods would 
not be included as part of the current period's compensation.
    The category depicted as ``Other'' in the table includes amounts 
not appropriately characterized as components of annual compensation. 
Section 620.5(i)(2)(i)(E) specifies two forms of compensation that 
should be included in this category: (1) Compensation in the form of 
payouts due to a senior officer's resignation, retirement, or 
termination from employment; and (2) contributions by the institution 
on behalf of the senior officer to a defined contribution plan for 
which cash payments from the plan are typically not available to the 
senior officer until a later date. Any form of compensation in this 
part must be specifically identified and described in a footnote to the 
table.
    The FCA received a mixed response to proposed 
Sec. 620.5(i)(2)(iii), which would have required FCS institutions to 
provide a general discussion of compensation plans of its senior 
officers. While many commenters supported the proposed requirement, 
others believed that the disclosures would be too burdensome to 
compile. The FCA Board continues to believe that such discussion would 
be beneficial in providing explanations of compensation plans to the 
readers of the report. For the most part, the final regulation retains 
the requirements in proposed Sec. 620.5(i)(2)(iii) that FCS 
institutions provide a description of the compensation plans of all 
those senior officers covered by the regulations. Proposed 
Sec. 620.5(i)(2)(iii) (F) and (G), which would have required 
institutions to discuss the amounts paid under the plans, were dropped 
from the final rule because the final rule requires these comments to 
be disclosed in the table. The remaining compensation discussion 
requirements are now contained in Sec. 620.5(i)(2)(ii) in the final 
rule.
    The final rule clarifies that bank senior officer compensation 
information is part of the financial information that should be made 
available to shareholders of both the bank and its related associations 
upon request. When the disclosure regulations in part 620 of this 
chapter were initially adopted, the FCA determined that, due to the 
structure of the System and the impact the banks have on the financial 
results of the associations, there was a need for association 
shareholders to receive the financial information of the bank in 
addition to the financial information of the association. Existing 
Sec. 620.4(b) implements this philosophy by requiring banks to 
distribute their annual reports to shareholders of related 
associations. Likewise, under the proposed rule, both the shareholders 
of the bank and related associations would have received the bank's 
annual report containing individual compensation information on the 
five most highly compensated bank senior officers. Although the 
disclosure requirement for individual senior officer compensation 
information was limited to CEOs in the final rule, the FCA Board 
continues to believe that it is important for shareholders of related 
associations to have access to individual compensation information of 
bank senior officers included in the aggregate disclosure required by 
Sec. 620.5(i)(2)(i)(B).
    Therefore, the required disclosure statement in proposed 
Sec. 620.5(i)(2)(iv) was modified to clarify its requirements and is 
now contained in Sec. 620.5(i)(2)(iii) in the final rule. Final 
Sec. 620.5(i)(2)(iii) requires institutions to include a statement in 
the annual report or the AAMIS (if the association chooses to include 
compensation information in the AAMIS) that ``information concerning 
the total compensation paid during the last fiscal year to any senior 
officer or to any other officer included in the aggregate whose 
compensation exceeds $50,000 is available and will be disclosed to 
shareholders of the institution and shareholders of related 
associations (if applicable) upon request.''
3. Travel, subsistence, and other related expenses
    The disclosure requirements for travel, subsistence, and other 
related expenses in the final regulation remain unchanged from the 
proposed regulation with one exception. Pursuant to the preceding 
discussion, the final rule clarifies that the institution's policy 
regarding travel, subsistence, and other related expenses should also 
be made available to shareholders of related associations (if 
applicable) upon request.

List of Subjects

12 CFR Part 611

    Agriculture, Banks, banking, Rural areas.

12 CFR Part 618

    Agriculture, Archives and records, Banks, banking, Insurance, 
Reporting and recordkeeping requirements, Rural areas, Technical 
assistance.

12 CFR Part 620

    Accounting, Agriculture, Banks, banking, Reporting and 
recordkeeping requirements, Rural areas.

    For the reasons stated in the preamble, parts 611, 618, and 620 of 
chapter VI, title 12 of the Code of Federal Regulations is amended to 
read as follows:

PART 611--ORGANIZATION

    1. The authority citation for part 611 is revised to read as 
follows:

    Authority: Secs. 1.3, 1.13, 2.0, 2.10, 3.0, 3.21, 4.12, 4.15, 
4.21, 5.9, 5.10, 5.17, 7.0-7.13, 8.5(e) of the Farm Credit Act (12 
U.S.C. 2011, 2021, 2071, 2091, 2121, 2142, 2183, 2203, 2209, 2243, 
2244, 2252, 2279a-2279f-1, 2279aa-5(e)); secs. 411 and 412 of Pub. 
L. 100-233, 101 Stat. 1568, 1638; secs. 409 and 414 of Pub. L. 100-
399, 102 Stat. 989, 1003, and 1004.

Subpart D--Rules for Compensation of Board Members

    2. Section 611.400 is revised to read as follows:


Sec. 611.400  Compensation of bank board members.

    (a) Farm Credit System banks are authorized to pay fair and 
reasonable compensation to directors for services performed in an 
official capacity at a rate not to exceed the level established in 
section 4.21 of the Farm Credit Act of 1971, as amended, unless the FCA 
determines that such a level adversely affects the safety and soundness 
of the institution.
    (b) The bank director compensation level established in section 
4.21 of the Act shall be adjusted to reflect changes in the Consumer 
Price Index (CPI) for all urban consumers, as published by the Bureau 
of Labor Statistics, in the following manner: Current year's maximum 
compensation = Prior year's maximum compensation adjusted by the prior 
year's annual average percent change in the CPI for all urban 
consumers. Adjustments will be made to the bank director statutory 
compensation limit beginning from October 28, 1992 (the date of 
enactment of the Farm Credit Banks and Associations Safety and 
Soundness Act of 1992). Additionally, each year the FCA will distribute 
a bookletter to all FCS banks that communicates the CPI adjusted bank 
director statutory compensation limit.
    (c) A waiver of the compensation limitation prescribed by section 
4.21 of the Act may be granted under exceptional circumstances as 
approved on a case-by-case basis by the FCA. However, the FCA shall not 
grant a waiver that allows a bank to pay any director in excess of 30 
percent more than the statutory maximum compensation as determined in 
accordance with paragraph (b) of this section. A waiver approval shall 
precede any payments by the bank to its director(s) that exceed the 
maximum limitation determined in paragraph (b) of this section. A bank 
seeking a waiver shall provide the FCA Chairman with a written request 
that:
    (1) Describes and explains the exceptional circumstance(s) that the 
bank believes necessitates a waiver of section 4.21 of the Act;
    (2) States the amount and the terms and conditions (if any) of the 
proposed compensation level for each director that would exceed the 
statutory maximum determined in accordance with paragraph (b) of this 
section; and
    (3) Justifies the compensation level of each director that would 
exceed the statutory limitation based on the extraordinary time and 
service devoted to bank business.
    The FCA shall respond to written requests within 60 days of receipt 
of the preceding information and the receipt of any other additional 
information requested by the FCA.
    (d) Each bank board shall adopt a written policy regarding 
compensation of bank directors. The policy shall address, at a minimum, 
the following areas:
    (1) The activities or functions for which attendance is necessary 
and appropriate and may be compensated, except that a Farm Credit 
System bank shall not compensate any director for rendering services on 
behalf of any other Farm Credit System institution or a cooperative of 
which the director is a member, or for performing other assignments of 
a non-official nature;
    (2) The methodology for determining each director's rate of 
compensation; and
    (3) The exceptional circumstances under which the board would seek 
a waiver of the statutory limitation on bank director compensation for 
any of its directors and any limitations or conditions the board wishes 
to place on the availability of such waivers.
    (e) Directors may also be reimbursed for reasonable travel, 
subsistence, and other related expenses in accordance with the policy 
adopted pursuant to Sec. 618.8270 of this chapter.

PART 618--GENERAL PROVISIONS

    3. The authority citation for part 618 continues to read as 
follows:

    Authority: Secs. 1.5, 1.11, 1.12, 2.2, 2.4, 2.5, 2.12, 3.1, 3.7, 
4.12, 4.13A, 4.25, 4.29, 5.9, 5.10, 5.17 of the Farm Credit Act (12 
U.S.C. 2013, 2019, 2020, 2073, 2075, 2076, 2093, 2122, 2128, 2183, 
2200, 2211, 2218, 2243, 2244, 2252).

Subpart F--Miscellaneous Provisions

    4. Section 618.8270 is revised to read as follows:


Sec. 618.8270  Travel, subsistence, and other related expenses.

    (a) Each Farm Credit institution board shall develop a written 
policy and maintain written records regarding the reimbursement of 
travel, subsistence, and other related expenses to its directors, 
officers, and employees. The policy shall address, at a minimum, the 
authorized purposes for which reimbursement of travel, subsistence, and 
other related expenses may be made and the guidelines and limitations 
on reimbursement.
    (b) Each board shall require a review by the institution's internal 
auditor (or person designated by the board) of at least a sampling of 
the records maintained pursuant to paragraph (a) of this section to 
determine if the policies are being consistently followed. This review 
shall be conducted at least annually, with the results reported to the 
board audit committee or the full board, if the board does not have an 
audit committee.

PART 620--DISCLOSURE TO SHAREHOLDERS

    5. The authority citation for part 620 continues to read as 
follows:

    Authority: Secs. 5.17, 5.19, 8.11 of the Farm Credit Act (12 
U.S.C. 2252, 2254, 2279aa-11); sec. 424 of Pub. L. 100-233, 101 
Stat. 1568, 1656.

    6. Section 620.5 is amended by revising paragraph (i) to read as 
follows:


Sec. 620.5  Contents of the annual report to shareholders.

* * * * *
    (i) Compensation of directors and senior officers.
    (1) Director compensation. Describe the arrangements under which 
directors of the institution are compensated for all services as a 
director (including total cash compensation and any noncash 
compensation that exceeds 10 percent of total compensation) and state 
the total cash compensation paid to all directors as a group during the 
last fiscal year. If applicable, describe any exceptional circumstances 
under which a waiver of section 4.21 of the Act was granted by the FCA. 
For each director, state:
    (i) The number of days served at board meetings;
    (ii) The total number of days served in other official activities;
    (iii) The total compensation paid to each director during the last 
fiscal year.
    (2) Senior officer compensation. Disclose the information on senior 
officer compensation and compensation plans as required by this 
paragraph. Farm Credit System associations may disclose the information 
required by this paragraph in the Association Annual Meeting 
Information Statement (AAMIS), but must include a reference in the 
annual report stating that the senior officer compensation information 
is included in the AAMIS.
    (i) The institution shall disclose the total amount of compensation 
paid to senior officers in substantially the same manner as the tabular 
form specified in the following Summary Compensation Table (table):

                                           Summary Compensation Table                                           
                                                                                                                
                                                                 Annual                                         
   Name of individual or No. in                  --------------------------------------                         
              group                     Year                               Deferred/       Other        Total   
                                                    Salary     Bonus     perquisites                            
(a)                                (b)                  (c)        (d)             (e)          (f)          (g)
                                                                                                                
----------------------------------------------------------------------------------------------------------------
CEO..............................  199X                                                                         
                                   199X                                                                         
                                   199X                                                                         
Aggregate No. of Senior Officers                                                                                
    (X)..........................  199X                                                                         
    (X)..........................  199X                                                                         
    (X)..........................  199X                                                                         

    (A) Report the total amount of compensation paid and the amount of 
each component of compensation paid to the institution's chief 
executive officer (CEO) for each of the last 3 completed fiscal years, 
naming the individual. If more than one person served in the capacity 
of CEO during any given fiscal year, individual compensation 
disclosures must be provided for each CEO. Except that, no disclosure 
need be provided for any CEO whose salary and bonus (or annualized 
salary and bonus, if the CEO served in that capacity less than a year) 
do not exceed $150,000, adjusted annually to reflect changes in the 
Consumer Price Index (CPI) for all urban consumers, as published by the 
Bureau of Labor Statistics. The threshold for individually disclosing 
CEO compensation information shall be adjusted in the following manner: 
Current year's compensation disclosure threshold = Prior year's 
compensation disclosure threshold adjusted by the prior year's annual 
average percent change in the CPI for all urban consumers. The 1994 
calendar year shall serve as the base year for making subsequent CPI 
adjustments to the $150,000 compensation disclosure threshold.
    (B) Report the aggregate amount of compensation paid and the 
components of compensation paid during each of the last 3 completed 
fiscal years to all senior officers as a group, stating the number of 
officers in the group without naming them. At a minimum, disclose the 
aggregate amount of compensation paid to the five most highly 
compensated officers, whether or not designated as a senior officer by 
the board.
    (C) Amounts shown as ``Salary'' (column (c)) and ``Bonus'' (column 
(d)) shall reflect the dollar value of salary and bonus earned by the 
senior officer during the fiscal year. Amounts contributed during the 
fiscal year by the senior officer pursuant to a plan established under 
section 401(k) of the Internal Revenue Code, or similar plan, shall be 
included in the salary column or bonus column, as appropriate. If the 
amount of salary or bonus earned during the fiscal year is not 
calculable by the time the report is prepared, the reporting 
institution shall provide its best estimate of the compensation 
amount(s) and disclose that fact in a footnote to the table.
    (D) Amounts shown as ``deferred/perquisites'' (column (e)) shall 
reflect the dollar value of other annual compensation not properly 
categorized as salary or bonus, including but not limited to:
    (1) Deferred compensation earned during the fiscal year, whether or 
not paid in cash; or
    (2) Perquisites and other personal benefits unless the aggregate 
value of such compensation is the lesser of either $25,000 or 10 
percent of the total of annual salary and bonus reported for the senior 
officer in columns (c) and (d).
    (E) Compensation amounts reported under the category ``Other'' 
(column (f)) shall reflect the dollar value of all other compensation 
not properly reportable in any other column. Items reported in this 
column shall be specifically identified and described in a footnote to 
the table. Such compensation includes, but is not limited to:
    (1) The amount paid to the senior officer pursuant to a plan or 
arrangement in connection with the resignation, retirement, or 
termination of such officer's employment with the institution; or
    (2) The amount of contributions by the institution on behalf of the 
senior officer to a vested or unvested defined contribution plan unless 
the plan is made available to all employees on the same basis.
    (F) Amounts displayed under ``Total'' (column (g)) shall reflect 
the sum total of amounts reported in columns (c), (d), (e), and (f).
    (ii) Provide a description of all plans pursuant to which cash or 
noncash compensation was paid or distributed during the last fiscal 
year, or is proposed to be paid or distributed in the future for 
performance during the last fiscal year, to those individuals described 
in paragraph (i)(2)(i) of this section. The description of each plan 
must include, but not be limited to:
    (A) A summary of how the plan operates and who is covered by the 
plan;
    (B) The criteria used to determine amounts payable, including any 
performance formula or measure;
    (C) The time periods over which the measurement of compensation 
will be determined;
    (D) Payment schedules; and
    (E) Any material amendments to the plan during the last fiscal 
year.
    (iii) The annual report or AAMIS shall include a statement that 
disclosure of information on the total compensation paid during the 
last fiscal year to any senior officer or to any other officer included 
in the aggregate whose compensation exceeds $50,000 is available and 
will be disclosed to shareholders of the institution and shareholders 
of related associations (if applicable) upon request.
    (3) Travel, subsistence, and other related expenses.
    (i) Briefly describe the policy adopted pursuant to Sec. 618.8270 
of this chapter addressing reimbursements for travel, subsistence, and 
other related expenses as it applies to directors and senior officers. 
The report shall include a statement that a copy of the policy is 
available to shareholders of the institution and shareholders of 
related associations (if applicable) upon request.
    (ii) For each of the last 3 fiscal years, state the aggregate 
amount of reimbursement for travel, subsistence, and other related 
expenses for all directors as a group.
* * * * *
    Dated: July 15, 1994.
Curtis M. Anderson,
Secretary, Farm Credit Administration Board.
[FR Doc. 94-17906 Filed 7-21-94; 8:45 am]
BILLING CODE 6705-01-P