12 U.S.C. § 5221 — Executive compensation and corporate

Page 1809 TITLE 12—BANKS AND BANKING § 5221 (b) Coordination The Secretary of Housing and Urban Develop- ment may, in carrying out the program devel- oped under this section, coordinate with the Secretary of the Treasury, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System, the Federal Housing Finance Agency, and any other Federal Government agency that the Secretary con- siders appropriate. (c) Definition For purposes of this section, the term ‘‘multi- family properties’’ means a residential structure that consists of 5 or more dwelling units. (d) Prevention of qualification for criminal appli- cants (1) In general No person shall be eligible to begin receiving assistance from the Making Home Affordable Program authorized under the Emergency Economic Stabilization Act of 2008 (12 U.S.C. 5201 et seq.), or any other mortgage assistance program authorized or funded by that Act, on or after 60 days after July 21, 2010, if such per- son, in connection with a mortgage or real es- tate transaction, has been convicted, within the last 10 years, of any one of the following: (A) Felony larceny, theft, fraud, or for- gery. (B) Money laundering. (C) Tax evasion. (2) Procedures The Secretary shall establish procedures to ensure compliance with this subsection. (3) Report The Secretary shall report to the Committee on Financial Services of the House of Rep- resentatives and the Committee on Banking, Housing, and Urban Affairs of the Senate re- garding the implementation of this provision. The report shall also describe the steps taken to implement this subsection. (Pub. L. 111–203, title XIV, § 1481, July 21, 2010, 124 Stat. 2202.) Editorial Notes REFERENCES IN TEXT The Emergency Economic Stabilization Act of 2008, referred to in subsec. (d)(1), is div. A of Pub. L. 110–343, Oct. 3, 2008, 122 Stat. 3765, which is classified prin- cipally to this chapter. For complete classification of this Act to the Code, see Short Title note set out under section 5201 of this title and Tables. CODIFICATION Section was enacted as part of the Mortgage Reform and Anti-Predatory Lending Act, and also as part of the Dodd-Frank Wall Street Reform and Consumer Pro- tection Act, and not as part of the Emergency Eco- nomic Stabilization Act of 2008 which comprises this chapter. Statutory Notes and Related Subsidiaries EFFECTIVE DATE Section effective on the date on which final regula- tions implementing such section take effect, or on the date that is 18 months after the designated transfer date if such regulations have not been issued by that date, see section 1400(c) of Pub. L. 111–203, set out as an Effective Date of 2010 Amendment note under section 1601 of Title 15, Commerce and Trade. DEFINITIONS For definitions of terms contained in this section, see section 5301 of this title. § 5221. Executive compensation and corporate governance (a) Definitions For purposes of this section, the following definitions shall apply: (1) Senior executive officer The term ‘‘senior executive officer’’ means an individual who is 1 of the top 5 most highly paid executives of a public company, whose compensation is required to be disclosed pur- suant to the Securities Exchange Act of 1934 [15 U.S.C. 78a et seq.], and any regulations issued thereunder, and non-public company counterparts. (2) Golden parachute payment The term ‘‘golden parachute payment’’ means any payment to a senior executive offi- cer for departure from a company for any rea- son, except for payments for services per- formed or benefits accrued. (3) TARP recipient The term ‘‘TARP recipient’’ means any enti- ty that has received or will receive financial assistance under the financial assistance pro- vided under the TARP. (4) Commission The term ‘‘Commission’’ means the Securi- ties and Exchange Commission. (5) Period in which obligation is outstanding; rule of construction For purposes of this section, the period in which any obligation arising from financial assistance provided under the TARP remains outstanding does not include any period dur- ing which the Federal Government only holds warrants to purchase common stock of the TARP recipient. (b) Executive compensation and corporate gov- ernance (1) Establishment of standards During the period in which any obligation arising from financial assistance provided under the TARP remains outstanding, each TARP recipient shall be subject to— (A) the standards established by the Sec- retary under this section; and (B) the provisions of section 162(m)(5) of title 26, as applicable. (2) Standards required The Secretary shall require each TARP re- cipient to meet appropriate standards for ex- ecutive compensation and corporate govern- ance. (3) Specific requirements The standards established under paragraph (2) shall include the following: Page 1810 TITLE 12—BANKS AND BANKING § 5221 1 So in original. Probably should be ‘‘are’’. (A) Limits on compensation that exclude incentives for senior executive officers of the TARP recipient to take unnecessary and ex- cessive risks that threaten the value of such recipient during the period in which any ob- ligation arising from financial assistance provided under the TARP remains out- standing. (B) A provision for the recovery by such TARP recipient of any bonus, retention award, or incentive compensation paid to a senior executive officer and any of the next 20 most highly-compensated employees of the TARP recipient based on statements of earnings, revenues, gains, or other criteria that are later found to be materially inac- curate. (C) A prohibition on such TARP recipient making any golden parachute payment to a senior executive officer or any of the next 5 most highly-compensated employees of the TARP recipient during the period in which any obligation arising from financial assist- ance provided under the TARP remains out- standing. (D)(i) A prohibition on such TARP recipi- ent paying or accruing any bonus, retention award, or incentive compensation during the period in which any obligation arising from financial assistance provided under the TARP remains outstanding, except that any prohibition developed under this paragraph shall not apply to the payment of long-term restricted stock by such TARP recipient, provided that such long-term restricted stock— (I) does not fully vest during the period in which any obligation arising from fi- nancial assistance provided to that TARP recipient remains outstanding; (II) has a value in an amount that is not greater than 1⁄3 of the total amount of an- nual compensation of the employee receiv- ing the stock; and (III) is subject to such other terms and conditions as the Secretary may deter- mine is 1 in the public interest. (ii) The prohibition required under clause (i) shall apply as follows: (I) For any financial institution that re- ceived financial assistance provided under the TARP equal to less than $25,000,000, the prohibition shall apply only to the most highly compensated employee of the finan- cial institution. (II) For any financial institution that re- ceived financial assistance provided under the TARP equal to at least $25,000,000, but less than $250,000,000, the prohibition shall apply to at least the 5 most highly-com- pensated employees of the financial insti- tution, or such higher number as the Sec- retary may determine is in the public in- terest with respect to any TARP recipient. (III) For any financial institution that received financial assistance provided under the TARP equal to at least $250,000,000, but less than $500,000,000, the prohibition shall apply to the senior exec- utive officers and at least the 10 next most highly-compensated employees, or such higher number as the Secretary may de- termine is in the public interest with re- spect to any TARP recipient. (IV) For any financial institution that received financial assistance provided under the TARP equal to $500,000,000 or more, the prohibition shall apply to the senior executive officers and at least the 20 next most highly-compensated employees, or such higher number as the Secretary may determine is in the public interest with respect to any TARP recipient. (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 Sec- retary. (E) A prohibition on any compensation plan that would encourage manipulation of the reported earnings of such TARP recipi- ent to enhance the compensation of any of its employees. (F) A requirement for the establishment of a Board Compensation Committee that meets the requirements of subsection (c). (4) Certification of compliance The chief executive officer and chief finan- cial officer (or the equivalents thereof) of each TARP recipient shall provide a written certifi- cation of compliance by the TARP recipient with the requirements of this section— (A) in the case of a TARP recipient, the se- curities of which are publicly traded, to the Securities and Exchange Commission, to- gether with annual filings required under the securities laws; and (B) in the case of a TARP recipient that is not a publicly traded company, to the Sec- retary. (c) Board Compensation Committee (1) Establishment of Board required Each TARP recipient shall establish a Board Compensation Committee, comprised entirely of independent directors, for the purpose of re- viewing employee compensation plans. (2) Meetings The Board Compensation Committee of each TARP recipient shall meet at least semiannu- ally to discuss and evaluate employee com- pensation plans in light of an assessment of any risk posed to the TARP recipient from such plans. (3) Compliance by non-SEC registrants In the case of any TARP recipient, the com- mon or preferred stock of which is not reg- istered pursuant to the Securities Exchange Act of 1934 [15 U.S.C. 78a et seq.], and that has received $25,000,000 or less of TARP assistance, the duties of the Board Compensation Com- mittee under this subsection shall be carried out by the board of directors of such TARP re- cipient. Page 1811 TITLE 12—BANKS AND BANKING § 5223 (d) Limitation on luxury expenditures The board of directors of any TARP recipient shall have in place a company-wide policy re- garding excessive or luxury expenditures, as identified by the Secretary, which may include excessive expenditures on— (1) entertainment or events; (2) office and facility renovations; (3) aviation or other transportation services; or (4) other activities or events that are not reasonable expenditures for staff development, reasonable performance incentives, or other similar measures conducted in the normal course of the business operations of the TARP recipient. (e) Shareholder approval of executive compensa- tion (1) Annual shareholder approval of executive compensation Any proxy or consent or authorization for an annual or other meeting of the shareholders of any TARP recipient during the period in which any obligation arising from financial assistance provided under the TARP remains outstanding shall permit a separate share- holder vote to approve the compensation of ex- ecutives, as disclosed pursuant to the com- pensation disclosure rules of the Commission (which disclosure shall include the compensa- tion discussion and analysis, the compensa- tion tables, and any related material). (2) Nonbinding vote A shareholder vote described in paragraph (1) shall not be binding on the board of direc- tors of a TARP recipient, and may not be con- strued as overruling a decision by such board, nor to create or imply any additional fidu- ciary duty by such board, nor shall such vote be construed to restrict or limit the ability of shareholders to make proposals for inclusion in proxy materials related to executive com- pensation. (3) Deadline for rulemaking Not later than 1 year after February 17, 2009, the Commission shall issue any final rules and regulations required by this subsection. (f) Review of prior payments to executives (1) In general The Secretary shall review bonuses, reten- tion awards, and other compensation paid to the senior executive officers and the next 20 most highly-compensated employees of each entity receiving TARP assistance before Feb- ruary 17, 2009, to determine whether any such payments were inconsistent with the purposes of this section or the TARP or were otherwise contrary to the public interest. (2) Negotiations for reimbursement If the Secretary makes a determination de- scribed in paragraph (1), the Secretary shall seek to negotiate with the TARP recipient and the subject employee for appropriate reim- bursements to the Federal Government with respect to compensation or bonuses. (g) No impediment to withdrawal by TARP re- cipients Subject to consultation with the appropriate Federal banking agency (as that term is defined in section 1813 of this title), if any, the Sec- retary shall permit a TARP recipient to repay any assistance previously provided under the TARP to such financial institution, without re- gard to whether the financial institution has re- placed such funds from any other source or to any waiting period, and when such assistance is repaid, the Secretary, at the market price, may liquidate warrants associated with such assist- ance. (h) Regulations The Secretary shall promulgate regulations to implement this section. (Pub. L. 110–343, div. A, title I, § 111, Oct. 3, 2008, 122 Stat. 3776; Pub. L. 111–5, div. B, title VII, § 7001, Feb. 17, 2009, 123 Stat. 516; Pub. L. 111–22, div. A, title IV, § 403, May 20, 2009, 123 Stat. 1658.) Editorial Notes REFERENCES IN TEXT The Securities Exchange Act of 1934, referred to in subsecs. (a)(1) and (c)(3), is act June 6, 1934, ch. 404, 48 Stat. 881, which is classified principally to chapter 2B (§ 78a et seq.) of Title 15, Commerce and Trade. For complete classification of this Act to the Code, see sec- tion 78a of Title 15 and Tables. AMENDMENTS 2009—Pub. L. 111–5 amended section generally. Prior to amendment, section consisted of subsecs. (a) to (d) relating to applicability of requirements, direct pur- chases of troubled assets, auction purchases of troubled assets, and sunset of provisions, respectively. Subsec. (g). Pub. L. 111–22 substituted ‘‘, at the mar- ket price, may liquidate warrants associated with such assistance’’ for ‘‘shall liquidate warrants associated with such assistance at the current market price’’. § 5222. Coordination with foreign authorities and central banks The Secretary shall coordinate, as appro- priate, with foreign financial authorities and central banks to work toward the establishment of similar programs by such authorities and cen- tral banks. To the extent that such foreign fi- nancial authorities or banks hold troubled as- sets as a result of extending financing to finan- cial institutions that have failed or defaulted on such financing, such troubled assets qualify for purchase under section 5211 of this title. (Pub. L. 110–343, div. A, title I, § 112, Oct. 3, 2008, 122 Stat. 3777.) § 5223. Minimization of long-term costs and maxi- mization of benefits for taxpayers (a) Long-term costs and benefits (1) Minimizing negative impact The Secretary shall use the authority under this chapter in a manner that will minimize any potential long-term negative impact on the taxpayer, taking into account the direct outlays, potential long-term returns on assets purchased, and the overall economic benefits of the program, including economic benefits due to improvements in economic activity and the availability of credit, the impact on the savings and pensions of individuals, and reduc- tions in losses to the Federal Government. (2) Authority In carrying out paragraph (1), the Secretary shall—