Prohibition and withholding of executive compensation

12 U.S.C. § 4518

• Title: 12 — Banks and Banking
• Chapter: SUBCHAPTER I—SUPERVISION AND REGULATION OF ENTERPRISES
• Part: A

Text

(a) In general
The Director shall prohibit the regulated entities from providing compensation to any executive officer of the regulated entity that is not reasonable and comparable with compensation for employment in other similar businesses (including other publicly held financial institutions or major financial services companies) involving similar duties and responsibilities.
(b) Factors
In making any determination under subsection (a), the Director may take into consideration any factors the Director considers relevant, including any wrongdoing on the part of the executive officer, and such wrongdoing shall include any fraudulent act or omission, breach of trust or fiduciary duty, violation of law, rule, regulation, order, or written agreement, and insider abuse with respect to the regulated entity. The approval of an agreement or contract pursuant to section 1723a(d)(3)(B) of this title or section 1452(h)(2) of this title shall not preclude the Director from making any subsequent determination under subsection (a).
(c) Withholding of compensation
In carrying out subsection (a), the Director may require a regulated entity to withhold any payment, transfer, or disbursement of compensation to an executive officer, or to place such compensation in an escrow account, during the review of the reasonableness and comparability of compensation.
(d) Prohibition of setting compensation
In carrying out subsection (a), the Director may not prescribe or set a specific level or range of compensation.
(e) Authority to regulate or prohibit certain forms of benefits to affiliated parties
The Director may prohibit or limit, by regulation or order, any golden parachute payment or indemnification payment.
The Director shall prescribe, by regulation, the factors to be considered by the Director in taking any action pursuant to paragraph (1), which may include such factors as—
(A) whether there is a reasonable basis to believe that the affiliated party has committed any fraudulent act or omission, breach of trust or fiduciary duty, or insider abuse with regard to the regulated entity that has had a material effect on the financial condition of the regulated entity;
(B) whether there is a reasonable basis to believe that the affiliated party is substantially responsible for the insolvency of the regulated entity, the appointment of a conservator or receiver for the regulated entity, or the troubled condition of the regulated entity (as defined in regulations prescribed by the Director);
(C) whether there is a reasonable basis to believe that the affiliated party has materially violated any applicable provision of Federal or State law or regulation that has had a material effect on the financial condition of the regulated entity;
(D) whether the affiliated party was in a position of managerial or fiduciary responsibility; and
(E) the length of time that the party was affiliated with the regulated entity, and the degree to which—
(i) the payment reasonably reflects compensation earned over the period of employment; and
(ii) the compensation involved represents a reasonable payment for services rendered.
No regulated entity may prepay the salary or any liability or legal expense of any affiliated party if such payment is made—
(A) in contemplation of the insolvency of such regulated entity, or after the commission of an act of insolvency; and
(B) with a view to, or having the result of—
(i) preventing the proper application of the assets of the regulated entity to creditors; or
(ii) preferring one creditor over another.
For purposes of this subsection, the term "golden parachute payment" means any payment (or any agreement to make any payment) in the nature of compensation by any regulated entity for the benefit of any affiliated party pursuant to an obligation of such regulated entity that—
(i) is contingent on the termination of such party's affiliation with the regulated entity; and
(ii) is received on or after the date on which—
(I) the regulated entity became insolvent;
(II) any conservator or receiver is appointed for such regulated entity; or
(III) the Director determines that the regulated entity is in a troubled condition (as defined in the regulations of the Director).
Any payment which would be a golden parachute payment but for the fact that such payment was made before the date referred to in subparagraph (A)(ii) shall be treated as a golden parachute payment if the payment was made in contemplation of the occurrence of an event described in any subclause of such subparagraph.
For purposes of this subsection, the term "golden parachute payment" shall not include—
(i) any payment made pursuant to a retirement plan which is qualified (or is intended to be qualified) under section 401 of title 26, or other nondiscriminatory benefit plan;
(ii) any payment made pursuant to a bona fide deferred compensation plan or arrangement which the Director determines, by regulation or order, to be permissible; or
(iii) any payment made by reason of the death or disability of an affiliated party.
For purposes of this subsection, the following definitions shall apply:
Subject to paragraph (6), the term "indemnification payment" means any payment (or any agreement to make any payment) by any regulated entity for the benefit of any person who is or was an affiliated party, to pay or reimburse such person for any liability or legal expense with regard to any administrative proceeding or civil action instituted by the Agency which results in a final order under which such person—
(i) is assessed a civil money penalty;
(ii) is removed or prohibited from participating in conduct of the affairs of the regulated entity; or
(iii) is required to take any affirmative action to correct certain conditions resulting from violations or practices, by order of the Director.
The term "liability or legal expense" means—
(i) any legal or other professional expense incurred in connection with any claim, proceeding, or action;
(ii) the amount of, and any cost incurred in connection with, any settlement of any claim, proceeding, or action; and
(iii) the amount of, and any cost incurred in connection with, any judgment or penalty imposed with respect to any claim, proceeding, or action.
The term "payment" includes—
(i) any direct or indirect transfer of any funds or any asset; and
(ii) any segregation of any funds or assets for the purpose of making, or pursuant to an agreement to make, any payment after the date on which such funds or assets are segregated, without regard to whether the obligation to make such payment is contingent on—
(I) the determination, after such date, of the liability for the payment of such amount; or
(II) the liquidation, after such date, of the amount of such payment.
No provision of this subsection shall be construed as prohibiting any regulated entity from purchasing any commercial insurance policy or fidelity bond, except that, subject to any requirement described in paragraph (5)(A)(iii), such insurance policy or bond shall not cover any legal or liability expense of the regulated entity which is described in paragraph (5)(A).

History

(Pub. L. 102–550, title XIII, §1318, Oct. 28, 1992, 106 Stat. 3949; Pub. L. 110–289, div. A, title I, §§1113(a), 1114, July 30, 2008, 122 Stat. 2678, 2679.)

Editorial Notes

Editorial Notes

Amendments
2008—Pub. L. 110–289, §1113(a)(1), substituted "and withholding of executive" for "of excessive" in section catchline.
Subsec. (a). Pub. L. 110–289, §1113(a)(2), substituted "regulated entity" for "enterprise" and "regulated entities" for "enterprises".
Subsecs. (b) to (d). Pub. L. 110–289, §1113(a)(3), (4), added subsecs. (b) and (c) and redesignated former subsec. (b) as (d).
Subsec. (e). Pub. L. 110–289, §1114, added subsec. (e).

Statutory Notes and Related Subsidiaries

Equity in Government Compensation
Pub. L. 114–93, Nov. 25, 2015, 129 Stat. 1310, provided that:
"This Act may be cited as the 'Equity in Government Compensation Act of 2015'.
"In this Act:
"(1) Director.—The term 'Director' means the Director of the Federal Housing Finance Agency.
"(2) Enterprise.—The term 'enterprise' means—
"(A) the Federal National Mortgage Association and any affiliate thereof; and
"(B) the Federal Home Loan Mortgage Corporation and any affiliate thereof.
"(a) Suspension of Current Compensation Package and Limitation.—The Director shall suspend the compensation packages approved for 2015 for the chief executive officers of each enterprise and, in lieu of such packages, subject to the limitation under subsection (b), establish the compensation and benefits for each such chief executive officer at the same level in effect for such officer as of January 1, 2015, and such compensation and benefits may not thereafter be increased.
"(b) Limitation on Bonuses.—Subsection (a) shall not be construed to affect the applicability of section 16 of the STOCK Act (12 U.S.C. 4518a) to the chief executive officer of each enterprise.
"(c) Applicability.—Subsection (a) shall only apply to a chief executive officer of an enterprise if the enterprise is in conservatorship or receivership pursuant to section 1367 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4617).
"Any chief executive officer affected by any provision under section 3 shall not be considered a Federal employee."