[Federal Register Volume 63, Number 178 (Tuesday, September 15, 1998)]
[Proposed Rules]
[Pages 49305-49307]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-24633]


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FARM CREDIT ADMINISTRATION

12 CFR Parts 611 and 620

RIN 3052-AB79


Organization; Disclosure to Shareholders; FCS Board Compensation 
Limits

AGENCY: Farm Credit Administration.

ACTION: Proposed rule.

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SUMMARY: The Farm Credit Administration (FCA or Agency), through the 
FCA Board (Board), proposes to amend its regulation on Farm Credit 
System (System or FCS) bank director compensation. The proposed 
amendment would authorize FCS banks to pay their directors more than 
the statutory maximum when justified by exceptional circumstances and 
remove the existing requirement that such payments receive FCA's prior 
approval.

DATES: Written comments must be received on or before October 15, 1998.

ADDRESSES: Comments may be mailed or delivered to Patricia W. DiMuzio, 
Director, Regulation and Policy Division, Office of Policy and 
Analysis, 1501 Farm Credit Drive, McLean, VA,

[[Page 49306]]

22102-5090 or sent by facsimile transmission to (703) 734-5784. 
Comments may also be submitted via electronic mail to ``reg-
[email protected]'' or through the Pending Regulations section of the FCA's 
interactive website at ``www.fca.gov.'' Copies of all communications 
received will be available for review by interested parties in the 
Office of Policy and Analysis, Farm Credit Administration.

FOR FURTHER INFORMATION CONTACT:
Alan Markowitz, Senior Policy Analyst, Office of Policy and Analysis, 
Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4479;
      or
William L. Larsen, Senior Attorney, Office of General Counsel, Farm 
Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TDD (703) 
883-4083.

SUPPLEMENTARY INFORMATION:

I. Background

    Prior to August 1988, the Farm Credit Act of 1971, as amended 
(Act), authorized the FCA to set the maximum level of FCS bank director 
compensation. At that time, Sec. 611.1020 limited bank director 
compensation to $200 per day, plus reasonable allowances for travel, 
subsistence, and other related expenses.\1\ With the passage of the 
Agricultural Credit Technical Corrections Act of 1988 (1988 Act),\2\ 
Congress modified FCA's regulatory authority over FCS bank director 
compensation and established a $15,000 annual limit on bank director 
compensation.\3\ The FCA published a final rule to reflect the 
statutory changes.\4\ The new rule removed the $200 per day limit and, 
in its place, authorized FCS banks to pay fair and reasonable director 
compensation that did not exceed the statutory limit.
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    \1\ See 52 FR 36012 (September 25, 1987).
    \2\ Pub. L. 100-399, 102 Stat. 989 (1988).
    \3\ See section 414 of the 1988 Act, which added section 4.21 of 
the 1971 Act.
    \4\ See 57 FR 43393 (September 21, 1992).
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    The Farm Credit Banks and Associations Safety and Soundness Act of 
1992 \5\ (1992 Act) amended section 4.21 of the Act to raise the limit 
on bank director compensation from $15,000 to $20,000 per year and 
authorized subsequent annual adjustments to reflect changes in the 
Consumer Price Index (CPI). The 1992 Act also authorized the FCA to 
waive the director compensation limitation under ``exceptional 
circumstances'' in accordance with regulations promulgated by the FCA. 
In response to these statutory changes, the Agency amended Sec. 611.400 
to incorporate the new FCS bank director compensation limits.\6\
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    \5\ Pub. L. 102-552, 106 Stat. 4102 (1992).
    \6\ See 59 FR 37406 (July 22, 1994).
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    Current Sec. 611.400 provides a process for annually adjusting bank 
director compensation in response to changes in the CPI and for 
granting waivers when exceptional circumstances necessitate exceeding 
the statutory maximum. The rule limits the amount of additional 
director compensation available by waiver to 30 percent of the 
statutory maximum. The rule also requires that the Agency approve a 
waiver before the additional compensation is paid. Section 611.400(c) 
requires a bank to submit a written request to the FCA to waive the 
limitation. The written request must: (1) Describe and explain the 
exceptional circumstances that the bank believes necessitate a waiver; 
(2) state the amount and the terms and conditions of the proposed 
compensation level for each director whose compensation would exceed 
the statutory maximum; and (3) justify the proposed level of 
compensation based on the extraordinary time and service the director 
devotes to bank business.
    The FCA, based on its experience in administering the waiver 
provisions of Sec. 611.400, proposes to remove the existing prior 
approval requirements for additional director compensation of up to 30 
percent of the statutory maximum when justified by exceptional 
circumstances. This proposed amendment is part of the Agency's 
continuing effort to streamline its regulations and reduce regulatory 
burden.

II. Analysis

    Since amending Sec. 611.400 in 1994, the FCA Board has approved 
several bank requests under the regulatory waiver mechanism to exceed 
the statutory maximum for bank director compensation. Most of the 
waivers were based on exceptional circumstances related to development 
and implementation of mergers, consolidations, and joint management 
proposals. These activities are typically outside the normal course of 
business for FCS bank directors and require them to devote exceptional 
time and attention to bank affairs. The FCA has also approved waiver 
requests justified by extraordinary director efforts in connection with 
joint strategic planning projects between banks and the hiring of a new 
chief executive officer. Significantly, in the 4 years since the FCA 
amended Sec. 611.400, the Agency has not found it necessary to deny a 
request for extraordinary director compensation.
    Current Sec. 611.400(d) requires each bank board of directors to 
adopt a written policy regarding the compensation of bank directors. 
Section 611.400(d)(3) requires this policy to address the exceptional 
circumstances under which the board would seek a waiver of the 
statutory maximum and any limitations or conditions the board would 
wish to place on the availability of such a waiver. Under the proposed 
rule, the requirement for a written policy would be retained. However, 
since the FCA would no longer approve in advance the payment of 
additional director compensation, the Agency would expect each bank to 
review its director compensation policy to be certain it reflects the 
added responsibility of the bank to ensure that such compensation 
occurs only in exceptional circumstances.

III. Proposed Changes

    Based on the considerations discussed above, the FCA proposes to 
amend Sec. 611.400(c) to eliminate the current prior approval 
requirement for waiver of the director compensation limitation. The 
proposal would authorize banks to pay directors up to 30 percent above 
the statutory maximum without notifying the FCA in advance. However, 
banks that grant additional compensation above the statutory maximum 
must maintain documentation justifying the additional director 
compensation, including the amount, and terms and conditions of the 
compensation, as well as a description of the extraordinary time and 
service the director devoted to bank business. Documentation will be 
subject to review and evaluation during the examination process.
    The FCA believes that elimination of Agency prior approval in this 
area strikes an appropriate balance between Congressional intent that 
additional compensation be granted for truly exceptional circumstances 
and the goal of reducing regulatory burden. The FCA's experience to 
date with bank applications to grant additional director compensation 
has led the Agency to conclude that prior approval is unnecessary and 
that the use of the new procedure can be adequately monitored through 
the examination process.
    The FCA also proposes conforming changes to Secs. 611.400(d)(3) and 
620.5(i)(1) to remove references to waivers granted by the FCA for 
providing additional compensation. As noted above, Sec. 611.400(d)(3) 
would continue to require banks to maintain a written policy addressing 
exceptional circumstances justifying additional

[[Page 49307]]

director compensation. The conforming changes to Sec. 620.5(i)(1) would 
continue to require annual report disclosure of director compensation. 
Should a director receive additional compensation in excess of the 
statutory maximum, the annual report must describe the exceptional 
circumstances justifying the additional compensation.

List of Subjects

12 CFR Part 611

    Agriculture, Banks, banking, Rural areas.

12 CFR Part 620

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

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

PART 611--ORGANIZATION

    1. The authority citation for part 611 continues 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 amended by revising paragraphs (c) and (d)(3) 
to read as follows:


Sec. 611.400  Compensation of bank board members.

* * * * *
    (c)(1) A Farm Credit bank is authorized to pay a director up to 30 
percent more than the statutory compensation limit in exceptional 
circumstances where the director contributes extraordinary time and 
effort in the service of the bank and its shareholders.
    (2) Banks must document the exceptional circumstances justifying 
additional director compensation. The documentation must describe:
    (i) The exceptional circumstances justifying the additional 
director compensation, including the extraordinary time and effort the 
director devoted to bank business; and (ii) The amount and the terms 
and conditions of the additional director compensation.
    (d) * * *
    (3) The exceptional circumstances under which the board would pay 
additional compensation for any of its directors as authorized by 
paragraph (c) of this section.
* * * * *

PART 620--DISCLOSURE TO SHAREHOLDERS

    3. 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.

Subpart B--Annual Report to Shareholders


Sec. 620.5  [Amended]

    4. Section 620.5(i)(1) is amended by removing the words ``under 
which a waiver of section 4.21 of the Act was granted by the FCA'' and 
adding in their place the words ``justifying the additional director 
compensation as authorized by Sec. 611.400(c)(1)'' in the second 
sentence.

    Dated: September 9, 1998.
Floyd Fithian,
Secretary, Farm Credit Administration Board.
[FR Doc. 98-24633 Filed 9-14-98; 8:45 am]
BILLING CODE 6705-01-P