[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 2866 Introduced in Senate (IS)]
110th CONGRESS
2d Session
S. 2866
To require greater disclosure of senior corporate officer compensation,
to empower shareholders and investors to protect themselves from fraud,
to limit conflicts of interest in determining senior corporate officer
compensation, to ensure integrity in Federal contracting, to close
corporate tax loopholes utilized to subsidize senior corporate officer
compensation, and for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
April 15, 2008
Mr. Reid (for Mrs. Clinton) introduced the following bill; which was
read twice and referred to the Committee on Finance
_______________________________________________________________________
A BILL
To require greater disclosure of senior corporate officer compensation,
to empower shareholders and investors to protect themselves from fraud,
to limit conflicts of interest in determining senior corporate officer
compensation, to ensure integrity in Federal contracting, to close
corporate tax loopholes utilized to subsidize senior corporate officer
compensation, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Corporate Executive Compensation
Accountability and Transparency Act''.
SEC. 2. LIMITATION ON ANNUAL AMOUNTS WHICH MAY BE DEFERRED UNDER
NONQUALIFIED DEFERRED COMPENSATION ARRANGEMENTS.
(a) In General.--Section 409A(a) of the Internal Revenue Code of
1986 (relating to inclusion of gross income under nonqualified deferred
compensation plans) is amended--
(1) by striking ``and (4)'' in subclause (I) of paragraph
(1)(A)(i) and inserting ``(4), and (5)'', and
(2) by adding at the end the following new paragraph:
``(5) Annual limitation on aggregate deferred amounts.--
``(A) Limitation.--The requirements of this
paragraph are met if the plan provides that the
aggregate amount of compensation which is deferred for
any taxable year with respect to a participant under
the plan may not exceed the applicable dollar amount
for the taxable year.
``(B) Inclusion of future earnings.--If an amount
is includible under paragraph (1) in the gross income
of a participant for any taxable year by reason of any
failure to meet the requirements of this paragraph, any
income (whether actual or notional) for any subsequent
taxable year shall be included in gross income under
paragraph (1)(A) in such subsequent taxable year to the
extent such income--
``(i) is attributable to compensation (or
income attributable to such compensation)
required to be included in gross income by
reason of such failure (including by reason of
this subparagraph), and
``(ii) is not subject to a substantial risk
of forfeiture and has not been previously
included in gross income.
``(C) Aggregation rules.--For purposes of this
paragraph, all nonqualified deferred compensation plans
maintained by all employers treated as a single
employer under subsection (d)(6) shall be treated as 1
plan.
``(D) Applicable dollar amount.--For purposes of
this paragraph, the term `applicable dollar amount'
means, with respect to any participant, $1,000,000.''.
(b) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2008,
except that the amendments shall only apply to amounts deferred
after December 31, 2008 (and to earnings on such amounts).
(2) Guidance relating to certain existing arrangements.--
Not later than 60 days after the date of the enactment of this
Act, the Secretary of the Treasury shall issue guidance
providing a limited period during which a nonqualified deferred
compensation plan adopted before December 31, 2008, may,
without violating the requirements of section 409A(a) of such
Code, be amended--
(A) to provide that a participant may, no later
than December 31, 2008, cancel or modify an outstanding
deferral election with regard to all or a portion of
amounts deferred after December 31, 2008, to the extent
necessary for the plan to meet the requirements of
section 409A(a)(5) of such Code (as added by the
amendments made by this section), but only if amounts
subject to the cancellation or modification are, to the
extent not previously included in gross income,
includible in income of the participant when no longer
subject to substantial risk of forfeiture, and
(B) to conform to the requirements of section
409A(a)(5) of such Code (as added by the amendments
made by this section) with regard to amounts deferred
after December 31, 2008.
SEC. 3. EXECUTIVE REIMBURSEMENT OF COMPENSATION FOR MISCONDUCT.
Section 304 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7243) is
amended--
(1) in subsection (a), by striking ``12-month'' each place
that term appears and inserting ``36-month'';
(2) by amending subsection (b) to read as follows:
``(b) Rulemaking To Improve Enforcement.--
``(1) In general.--Not later than 120 days after the date
of enactment of the Corporate Executive Compensation
Accountability and Transparency Act, the Commission shall
develop and issue regulations to ensure more effective
enforcement of subsection (a). In developing the regulations
required under this paragraph, the Commission shall provide a
comment period not to exceed 60 days.
``(2) Required inclusions.--The regulations required under
paragraph (1) shall, at a minimum, clarify--
``(A) that the term `misconduct' includes
misconduct that results from--
``(i) specific illicit actions of a senior
executive or officer, including the chief
executive officer and chief financial officer,
of a company, or knowledge of illicit actions,
accompanied by willful inaction to address such
illicit actions; or
``(ii) the willful concealment by such
executive or officer, of illicit actions; and
``(B) that the term `illicit action' includes any
of the following activities:
``(i) Backdating stock options to conceal
liabilities, losses, or any other negative
financial information from shareholders and
investors.
``(ii) Accounting irregularities designed
to conceal losses, liabilities, or other
negative financial information from
shareholders, boards of directors, or
government regulators, that are required to be
disclosed under this Act, or any other Act,
regulation, or rule governing securities.
``(iii) Accounting irregularities designed
to artificially achieve profit or other
financial targets that would not have
reasonably been met under generally accepted
accounting principles and industry standards,
or through compliance with--
``(I) this Act, or any other Act,
regulation, or rule governing
securities; and
``(II) any provision of the
Internal Revenue Code of 1986.
``(iv) Willfully circumventing the
reporting, independence, due diligence,
disclosure or fiduciary requirements and
obligations of this Act, or any other Act,
regulation, or rule governing securities in
order to mislead, deceive, or withhold
information that is required to be given to
shareholders, boards of directors, and Federal
and State regulatory authorities.
``(v) Any conduct that violates, or is in
conflict with, the legal and fiduciary
responsibilities of the senior executive or
officer to the shareholders and boards of
directors of such executive or officer.''; and
(3) by adding at the end the following:
``(c) Report.--Not later than 60 days after the date of enactment
of the Corporate Executive Compensation Accountability and Transparency
Act, the Chair of the Commission shall issue a report--
``(1) analyzing the current enforcement efforts of the
Commission in regards to this section; and
``(2) listing the legislative, regulatory, or
administrative recommendations of the Commission on how to
remove any current barriers to effective enforcement of this
section.
``(d) Commission Exemption Authority.--
``(1) In general.--The Commission may exempt any person
from the application of subsection (a), as it deems necessary
and appropriate.
``(2) Notice.--If the Commission exempts any person
pursuant to its authority under paragraph (1), the Commission
shall, not later than 15 days after such exemption is granted,
issue a public statement explaining the factors surrounding the
granting of such exemption and shall notify the chairperson and
ranking minority member of the appropriate committees of
Congress.''.
SEC. 4. SHAREHOLDER VOTE ON EXECUTIVE COMPENSATION DISCLOSURES.
(a) Amendment.--Section 14 of the Securities Exchange Act of 1934
(15 U.S.C. 78n) is amended by adding at the end the following:
``(i) Annual Shareholder Approval of Executive Compensation.--
``(1) Annual vote.--Any proxy or consent or authorization
for an annual meeting of the shareholders (or a special meeting
in lieu of the annual meeting) occurring on or after January 1,
2009, shall provide for a separate shareholder vote to approve
the compensation of executives as disclosed pursuant to the
Commission's compensation disclosure rules (which disclosure
shall include the compensation discussion and analysis, the
compensation tables, and any related material). The shareholder
vote shall not be binding on the corporation or the board of
directors and shall not be construed as overruling a decision
by such board, nor to create or imply any additional fiduciary
duty by such board, nor shall such vote be construed to
restrict or limit the ability of shareholders to make proposals
for inclusion in such proxy materials related to executive
compensation.
``(2) Shareholder approval of golden parachute
compensation.--
``(A) Disclosure.--In any proxy solicitation
material for an annual meeting of the shareholders (or
a special meeting in lieu of the annual meeting)
occurring on or after January 1, 2009, that concerns an
acquisition, merger, consolidation, or proposed sale or
other disposition of substantially all the assets of an
issuer, the person making such solicitation shall
disclose in the proxy solicitation material, in a clear
and simple form in accordance with regulations of the
Commission, any agreements or understandings that such
person has with any principal executive officers of
such issuer (or of the acquiring issuer, if such issuer
is not the acquiring issuer) concerning any type of
compensation (whether present, deferred, or contingent)
that are based on or otherwise relate to the
acquisition, merger, consolidation, sale, or other
disposition, and that have not been subject to a
shareholder vote under paragraph (1).
``(B) Shareholder approval.--The proxy solicitation
material containing the disclosure required by
subparagraph (A) shall provide for a separate
shareholder vote to approve such agreements or
understandings. A vote by the shareholders shall not be
binding on the corporation or the board of directors
and shall not be construed as overruling a decision by
such board, nor to create or imply any additional
fiduciary duty by such board, nor shall such vote be
construed to restrict or limit the ability of
shareholders to make proposals for inclusion in such
proxy materials related to executive compensation.''.
(b) Deadline for Rulemaking.--Not later than 1 year after the date
of the enactment of this Act, the Securities and Exchange Commission
shall issue any final rules and regulations required by the amendments
made by subsection (a).
SEC. 5. DISCLOSURE OF COMPENSATION CONSULTANT ACTIVITIES AND
INDEPENDENCE.
(a) Rulemaking.--Not later than 120 days after the date of the
enactment of this Act, the Securities and Exchange Commission shall
issue regulations clarifying and strengthening disclosure requirements
for the compensation of consultants or advisors to a compensation
committee of any company.
(b) Content.--The regulations required under subsection (a) shall--
(1) prohibit any other work or service performed by a
compensation consultant on behalf of the company that presents
a conflict of interest or otherwise compromises the
independence of the consultant;
(2) require the company to certify whether a compensation
consultant performed any work, research, or preparation, or
otherwise had reasonable involvement in a compensation
recommendation, is independent; and
(3) clarify the standards used by the Securities and
Exchange Commission to determine the independence of
compensation consultants, provided that such standards include
the following limitations:
(A) A compensation consultant who at any time in
the previous 18 months prior to the compensation
recommendation of such consultant to a company had
noncompensation consulting related business, or
otherwise had a noncompensation consultation related
financial relationship with that company, shall not be
considered independent.
(B) A compensation consultant that has or
previously had any financial or professional
relationship with a company, the board of directors of
such company, or any senior executive officers of such
company, that would reasonably be construed as
presenting a conflict of interest in the compensation
consultation recommendation of that consultant shall
not be considered independent.
(c) Definition of Company.--For purpose of this section, the term
``company'' means a corporation, association, partnership, trust,
limited liability company, limited liability partnership, or other
legal entity.
SEC. 6. REQUIREMENT FOR CERTAIN FEDERAL CONTRACTORS TO DISCLOSE
EXECUTIVE COMPENSATION STRUCTURES.
(a) Disclosure Requirement.--
(1) Civilian contracts.--Title III of the Federal Property
and Administrative Services Act of 1949 (41 U.S.C. 251 et seq.)
is amended by adding at the end the following new section:
``SEC. 318. REQUIREMENT TO DISCLOSE EXECUTIVE COMPENSATION STRUCTURES.
``(a) Compensation Structure Disclosure.--A contract for the
procurement of property or services entered into by an executive agency
with a covered contractor shall require the contractor to disclose to
the contracting official an accounting of the compensation structures
for the following individuals:
``(1) The chief executive officer of the contractor.
``(2) The chief financial officer of the contractor.
``(3) The 5 most highly compensated executive officers of
the contractor.
``(4) Each member of the board of directors of the
contractor, as appropriate.
``(b) Compensation Discussion and Analysis.--Not later than 90 days
after entering into a contract described under subsection (a), a
covered contractor shall submit to the contracting official of the
executive agency a compensation discussion and analysis that justifies
the compensation structures for the individuals identified in such
subsection, including a good faith analysis and comparison of
prevailing standard industry and market compensation structures with
the compensation structures for such individuals.
``(c) Annual Update.--The covered contractor shall submit to the
contracting official of the executive agency an annual update of the
information required under subsection (a) for the duration of the
contract.
``(d) Alternative Disclosure Requirement for Certain Contractors.--
``(1) In general.--A covered contractor described in
paragraph (2) that is unable to provide the information
required under subsections (a) and (b) may instead provide to
the contracting official of the executive agency the following:
``(A) A certification that the contractor received
less than 50 percent of its annual gross revenues from
Federal contracts during the immediately preceding
fiscal year.
``(B) An accounting of the compensation structures
for the 3 most highly compensated executive officers of
the contractor.
``(2) Contractors eligible for alternative disclosure
requirements.--A covered contractor is eligible to provide
alternative disclosure under this subsection if it is not
publicly held and is a small business concern owned and
controlled by socially and economically disadvantaged
individuals, a small business concern owned and controlled by
veterans, a small business concern owned and controlled by
women, or a socially and economically disadvantaged small
business concern.
``(3) Definitions.--In this subsection--
``(A) the term `publicly held' means a business
concern that is--
``(i) an issuer of a class of securities
registered or that is required to be registered
pursuant to section 12 of the Securities
Exchange Act of 1934 (15 U.S.C. 781) or that is
required to file reports pursuant to section
15(d) of that Act (15 U.S.C. 78o(d)); or
``(ii) owned by an issuer of a class of
securities registered or that is required to be
registered pursuant to section 12 of the
Securities Exchange Act of 1934 (15 U.S.C. 78l)
or that is required to file reports pursuant to
section 15(d) of that Act (15 U.S.C. 78o(d));
``(B) the term `small business concern owned and
controlled by socially and economically disadvantaged
individuals' has the meaning given that term in section
8(d)(3)(C) of the Small Business Act (15 U.S.C.
637(d)(3)(C));
``(C) the terms `small business concern owned and
controlled by veterans' and `small business concern
owned and controlled by women' have the meanings given
those terms in section 3 of the Small Business Act (15
U.S.C. 632); and
``(D) the term `socially and economically
disadvantaged small business concern' has the meaning
given that term in section 8(a)(4) of the Small
Business Act (15 U.S.C. 637(a)(4)).
``(e) Use of Information in Future Contracting Decisions.--
Information on contractors collected under subsections (b) and (d)
shall be used by executive agencies in justifying and determining the
value of future contract awards.
``(f) Availability of Information.--Information collected under
subsections (a) through (d) shall be made publicly available in
searchable form through the Federal Procurement Data System described
in section 6(d)(4)(A) of the Office of Federal Procurement Policy Act
(41 U.S.C. 405(d)(4)(A)).
``(g) Covered Contractor Defined.--In this section, the term
`covered contractor' means an individual or entity that received more
than $5,000,000 in annual gross revenues from Federal contracts (or
subcontracts at any tier) during the preceding fiscal year.''.
(2) Defense contracts.--
(A) Disclosure requirement.--Chapter 137 of title
10, United States Code, is amended by adding at the end
the following new section:
``Sec. 2334. Requirement to disclose executive compensation structures
``(a) Compensation Structure Disclosure.--A contract for the
procurement of property or services entered into by an agency with a
covered contractor shall require the contractor to disclose to the
contracting official an accounting of the compensation structures for
the following individuals:
``(1) The chief executive officer of the contractor.
``(2) The chief financial officer of the contractor.
``(3) The 5 most highly compensated executive officers of
the contractor.
``(4) Each member of the board of directors of the
contractor, as appropriate.
``(b) Compensation Discussion and Analysis.--Not later than 90 days
after entering into a contract described under subsection (a), a
covered contractor shall submit to the contracting official of the
agency a compensation discussion and analysis that justifies the
compensation structures for the individuals identified in such
subsection, including a good faith analysis and comparison of
prevailing standard industry and market compensation structures with
the compensation structures for such individuals.
``(c) Annual Update.--The covered contractor shall submit to the
contracting official of the agency an annual update of the information
required under subsection (a) for the duration of the contract.
``(d) Alternative Disclosure Requirement for Certain Contractors.--
``(1) In general.--A covered contractor described in
paragraph (2) that is unable to provide the information
required under subsections (a) and (b) may instead provide to
the contracting official of the agency the following:
``(A) A certification that the contractor received
less than 50 percent of its annual gross revenues from
Federal contracts during the immediately preceding
fiscal year.
``(B) An accounting of the compensation structures
for the 3 most highly compensated executive officers of
the contractor.
``(2) Contractors eligible for alternative disclosure
requirements.--A covered contractor is eligible to provide
alternative disclosure under this subsection if it is not
publicly held and is a small business concern owned and
controlled by socially and economically disadvantaged
individuals, a small business concern owned and controlled by
veterans, a small business concern owned and controlled by
women, or a socially and economically disadvantaged small
business concern.
``(3) Definitions.--In this subsection--
``(A) the term `publicly held' means a business
concern that is--
``(i) an issuer of a class of securities
registered or that is required to be registered
pursuant to section 12 of the Securities
Exchange Act of 1934 (15 U.S.C. 781) or that is
required to file reports pursuant to section
15(d) of that Act (15 U.S.C. 78o(d)); or
``(ii) owned by an issuer of a class of
securities registered or that is required to be
registered pursuant to section 12 of the
Securities Exchange Act of 1934 (15 U.S.C. 78l)
or that is required to file reports pursuant to
section 15(d) of that Act (15 U.S.C. 78o(d));
``(B) the term `small business concern owned and
controlled by socially and economically disadvantaged
individuals' has the meaning given that term in section
8(d)(3)(C) of the Small Business Act (15 U.S.C.
637(d)(3)(C));
``(C) the terms `small business concern owned and
controlled by veterans' and `small business concern
owned and controlled by women' have the meanings given
those terms in section 3 of the Small Business Act (15
U.S.C. 632); and
``(D) the term `socially and economically
disadvantaged small business concern' has the meaning
given that term in section 8(a)(4) of the Small
Business Act (15 U.S.C. 637(a)(4)).
``(e) Use of Information in Future Contracting Decisions.--
Information on contractors collected under subsections (b) and (d)
shall be used by agencies in justifying and determining the value of
future contract awards.
``(f) Availability of Information.--Information collected under
subsections (a) through (d) shall be made publicly available in
searchable form through the Federal Procurement Data System described
in section 6(d)(4)(A) of the Office of Federal Procurement Policy Act
(41 U.S.C. 405(d)(4)(A)).
``(g) Covered Contractor Defined.--In this section, the term
`covered contractor' means an individual or entity that received more
than $5,000,000 in annual gross revenues from Federal contracts (or
subcontracts at any tier) during the preceding fiscal year.''.
(B) Clerical amendment.--The table of contents at
the beginning of such chapter is amended by adding at
the end the following new item:
``2334. Requirement to disclose executive compensation structures.''.
(b) Amendment of Federal Acquisition Regulation.--Not later than
120 days after the date of the enactment of this Act, the Federal
Acquisition Regulatory Council shall amend the Federal Acquisition
regulation issued pursuant to section 25 of the Office of Federal
Procurement Policy Act (41 U.S.C. 421) to provide for the
implementation of the requirements of section 318 of the Federal
Property of Administrative Services Act of 1949, as added by subsection
(a)(1) and section 2334 of title 10, United States Code, as added by
subsection (a)(2).
SEC. 7. INCREASING TRANSPARENCY ON STOCK OPTIONS ACCOUNTING AND
ACCURATE VALUATION OF EXECUTIVE COMPENSATION.
(a) In General.--Notwithstanding any other provision of law, not
later than 90 days after the date of the enactment of this Act, the
Securities and Exchange Commission, in a manner consistent with the
goal of providing investors with a clearer and more complete picture of
the compensation earned by the principal executive officer, principal
financial officer, the highest paid executive officers, and the members
of the board of director of a company, shall issue regulations that
require each company subject to the jurisdiction of the Commission to
disclose, in clear terms, the full grant date present value of equity
instruments that are used as executive compensation awards in the
Summary Compensation Table of each such company.
(b) Definition of Company.--For purpose of this section, the term
``company'' means a corporation, association, partnership, trust,
limited liability company, limited liability partnership, or other
legal entity.
(c) Rule of Construction.--Nothing in this section shall be
construed to enable the Securities and Exchange Commission to take
action that would materially weaken any current reporting or disclosure
requirements or to allow an alternative valuation not consistent with
the standard of ``full grant date present value of equity instruments''
to meet the goals of subsection (a).
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