WASHINGTON (7/23/09)—The House Financial Services Committee set July 28 as the mark up date for its recently announced bill that addresses both corporate and financial institutions executive compensation. H.R. 3269, the Corporate and Financial Institution Compensation Fairness Act, was built on a 2007 House-passed compensation measure known as “Say-on-Pay,” combined with recent proposals unveiled by the U.S. Treasury Department. No limits on executive compensation are contained in the draft. Of its four component parts, two address compensation at financial institutions. "Incentive-Based Compensation Disclosure Requirements" proposes to require financial institutions to disclose compensation structures that include any incentive-based elements. “Compensation Standards for Financial Institutions" would require federal regulators to proscribe "inappropriate or imprudently risky" compensation practices as part of solvency regulation. This latter section—number four in the bill—is the only one that affects credit unions, including privately insured credit unions. It directs the National Credit Union Administration (NCUA) and federal banks and thrift regulators to jointly prescribe regulations requiring all financial institutions to disclose information related to the structure of incentive-based compensation structures. Regulations must be issued within 270 days of the date of enactment. The disclosed information, according to the bill, should be sufficient to determine whether a compensation structure:
* Properly measures and rewards performance; * Is structured to account for the time horizon of risks; * Is aligned with sound risk management; and * Meets other criteria appropriate to reduce unreasonable incentives for officers and employees to take undue risks that could have serious adverse effects.
The section also gives the regulators power to ban any compensation structure or incentive-based payment arrangement determined to encourage inappropriate risks by financial institutions that could have serious adverse effects on economic conditions or financial stability or could threaten the safety and soundness of the institution. The NCUA would enforce the section for federally insured credit unions; the Federal Trade Commission would be responsible for enforcement for privately insured credit unions.