Daily Whipline

July 31, 2009

Whipline

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Floor Schedule and Procedure 

• H. Res. 697 – Rule providing for consideration of H.R. 3269 – Corporate and Financial Institution Compensation Fairness Act of 2009 (Rep. McGovern – Rules):  The closed rule provides for one hour of general debate equally divided and controlled by the Chair and Ranking Minority Member of the Committee on Financial Services.  The rule makes in order the amendment printed in the report of the Committee on Rules if offered by Rep. Frank or his designee, which shall be considered as read, shall be separately debatable for 10 minutes equally divided and controlled by the proponent and an opponent, and shall not be subject to a demand for division of the question.  The rule also makes in order the amendment in the nature of a substitute printed in the report of the Committee on Rules, if offered by Representative Garrett of New Jersey or his designee, which shall be separately debatable for 30 minutes equally divided and controlled by the proponent and an opponent. The rule provides one motion to recommit the bill with or without instructions.  Debate on the rule will be managed by Rep. McGovern, and consideration will proceed as follows: 
  • One hour of debate on the rule.
  • Possible vote on a Democratic Motion ordering the previous question. Members are urged to vote yes.
  • Vote on adoption of the rule. Members are urged to vote yes.

• H.R. 3269 – Corporate and Financial Institution Compensation Fairness Act of 2009 (Rep. Frank – Financial Services):  Pursuant to H.Res. 697, debate on the bill will be managed by Financial Services Committee Chairman Barney Frank, or his designee.  Consideration of the bill will proceed as follows:
  • One hour of general debate on the bill.
  • 10 minutes of debate and possible vote on Manager’s Amendment.  Members are urged to VOTE YES.
  • 30 minutes of debate and possible vote on Republican Substitute Amendment.  Members are urged to VOTE NO on the Republican Substitute.
  • Possible debate and vote on Republican motion to recommit the bill.
  • Vote on final passage of the bill.  Members are urged to VOTE YES.

Bill Summary & Key Issues

Summary of H.R. 3269 – Corporate and Financial Institution Compensation Fairness Act of 2009

Based on the “Say-on-Pay” legislation that passed the House in 2007 and the compensation-related legislative proposals released July 16th by the Treasury Department, H.R. 3269 bill has four major components:

Say-on-Pay

• Applies to public companies
• Requires annual shareholder advisory vote on compensation
• Requires shareholder advisory vote on golden parachutes
• SEC allowed to exempt categories of public companies;
  • In determining exemptions, SEC shall take into account the potential impact on smaller companies
• Requires at least annual reporting of annual say-on-pay and golden parachutes votes by all institutional investors, unless such votes are otherwise required to be reported publicly by SEC rule
• Provides that compensation approved by a majority say-on-pay vote is not subject to clawback, except as provided by contract or due to fraud to the extent provided by law

Independent Compensation Committee Requirement

• Applies to only public companies
• Requires compensation committees be made up of independent directors
  • Makes provision for smaller companies whose boards may not have separate compensation committee
• Requires that compensation consultants satisfy independence criteria established by the SEC
• SEC allowed to exempt categories of public companies;
  • In determining exemptions, SEC shall take into account the potential impact on smaller companies

Incentive Based Compensation Disclosure Requirements

• Applies to all “financial institutions” with more than $1B in assets.
  • Definition specifically includes banks, bank holding companies, broker-dealers, credit unions, investment advisors, Fannie Mae & Freddie Mac.
  • Definition also includes any financial institution identified as appropriate during joint rulemaking by the “relevant Federal financial regulators” (see below).
• Requires all “financial institutions” to disclose compensation structures that include any incentive based elements
• Financial companies that do not have incentive-based payment arrangements are not required to make disclosures regarding incentive-based payment arrangements

Incentive Based Compensation Standards

• Applies to all “financial institutions” with more than $1B in assets
  •  See definition of “financial institutions,” above.
• Requires federal regulators to proscribe inappropriate or imprudently risky compensation practices as part of solvency regulation

“Appropriate Federal Regulators”– as referenced above, the bill requires the following federal regulators to jointly determine the disclosure requirements and incentive-based compensation standards in Sec. 4 of the bill:

• Federal Reserve Bank
• Office of the Comptroller of the Currency
• Federal Deposit Insurance Corporation
• Office of Thrift Supervision
• National Credit Union Administration Board
• Securities & Exchange Commission
• Federal Housing Finance Agency

Additional Features

• Bill also requires GAO study of the correlation between compensation structure and excessive risk-taking.

Amendments to H.R. 3269 – Corporate and Financial Institution Compensation Fairness Act of 2009   

1. Frank (Manager’s):  would strike language prohibiting clawbacks of executive compensation approved by shareholders and insert language prohibiting rules of financial regulators from requiring recovery of incentive-based pay under arrangements in effect on the date of enactment.
   Members are urged to VOTE YES.


2. Garrett (Republican Substitute):  would replace annual shareholder “say on pay” vote with a triennial vote on compensation for public companies, allow shareholders to opt out of “say on pay” provision, allow state law to preempt the bill regarding independent compensation committees, and strike Section 4 of the bill.
   Members are urged to VOTE NO.

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