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111th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     111-64

======================================================================

 
    AMENDING THE EXECUTIVE COMPENSATION PROVISIONS OF THE EMERGENCY 
    ECONOMIC STABILIZATION ACT OF 2008 TO PROHIBIT UNREASONABLE AND 
   EXCESSIVE COMPENSATION AND COMPENSATION NOT BASED ON PERFORMANCE 
                               STANDARDS

                                _______
                                

 March 30, 2009.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

 Mr. Frank of Massachusetts, from the Committee on Financial Services, 
                        submitted the following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 1664]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 1664) to amend the executive compensation 
provisions of the Emergency Economic Stabilization Act of 2008 
to prohibit unreasonable and excessive compensation and 
compensation not based on performance standards, having 
considered the same, report favorably thereon with an amendment 
and recommend that the bill as amended do pass.

                                 CONTENTS

                                                                   Page
Amendment........................................................     2
Purpose and Summary..............................................     3
Background and Need for Legislation..............................     3
Hearings.........................................................     4
Committee Consideration..........................................     5
Committee Votes..................................................     5
Committee Oversight Findings.....................................     7
Performance Goals and Objectives.................................     7
New Budget Authority, Entitlement Authority, and Tax Expenditures     7
Committee Cost Estimate..........................................     7
Congressional Budget Office Estimate.............................     7
Federal Mandates Statement.......................................     8
Advisory Committee Statement.....................................     9
Constitutional Authority Statement...............................     9
Applicability to Legislative Branch..............................     9
Earmark Identification...........................................     9
Section-by-Section Analysis of the Legislation...................     9
Changes in Existing Law Made by the Bill, as Reported............    10
Dissenting Views.................................................    14

                               Amendment

    The amendment is as follows:
    Strike all after the enacting clause and insert the 
following:

SECTION 1. PROHIBITION ON CERTAIN COMPENSATION.

  (a) Prohibition on Certain Compensation Not Based on Performance 
Standards.--Section 111 of the Emergency Economic Stabilization Act of 
2008 (12 U.S.C. 5221) is amended by redesignating subsections (e) 
through (h) as subsections (f) through (i), and inserting after 
subsection (d) the following:
  ``(e) Prohibition on Certain Compensation Not Based on Performance 
Standards.--
          ``(1) Prohibition.--No financial institution that has 
        received or receives a direct capital investment under the 
        Troubled Assets Relief Program under this title, or with 
        respect to the Federal National Mortgage Association, the 
        Federal Home Loan Mortgage Corporation, or a Federal home loan 
        bank, under the amendments made by section 1117 of the Housing 
        and Economic Recovery Act of 2008, may, while that capital 
        investment remains outstanding, make a compensation payment, 
        other than a longevity bonus or a payment in the form of 
        restricted stock, to any executive or employee under any 
        existing compensation arrangement, or enter into a new 
        compensation payment arrangement, if such compensation payment 
        or compensation payment arrangement--
                  ``(A) provides for compensation that is unreasonable 
                or excessive, as defined in standards established by 
                the Secretary, in consultation with the Chairperson of 
                the Congressional Oversight Panel established under 
                section 125, in accordance with paragraph (2); or
                  ``(B) includes any bonus or other supplemental 
                payment that is not directly based on performance-based 
                measures set forth in standards established by the 
                Secretary in accordance with paragraph (2).
        Provided that, nothing in this paragraph applies to an 
        institution that did business with a recipient of a direct 
        capital investment under the TARP.
          ``(2) Standards.--Not later than 30 days after the date of 
        enactment of this subsection, the Secretary, with the approval 
        of the agencies that are members of the Federal Financial 
        Institutions Examination Council, and in consultation with the 
        Chairperson of the Congressional Oversight Panel established 
        under section 125, shall establish the following:
                  ``(A) Unreasonable and excessive compensation 
                standards.--Standards that define `unreasonable or 
                excessive' for purposes of subparagraph (1)(A).
                  ``(B) Performance-based standards.--Standards for 
                performance-based measures that a financial institution 
                must apply when determining whether it may provide a 
                bonus or retention payment under paragraph (1)(B). Such 
                performance measures shall include--
                          ``(i) the stability of the financial 
                        institution and its ability to repay or begin 
                        repaying the United States for any capital 
                        investment received under this title;
                          ``(ii) the performance of the individual 
                        executive or employee to whom the payment 
                        relates;
                          ``(iii) adherence by executives and employees 
                        to appropriate risk management requirements; 
                        and
                          ``(iv) other standards which provide greater 
                        accountability to shareholders and taxpayers.
          ``(3) Reporting requirement.--
                  ``(A) In general.--Any financial institution that is 
                subject to the requirements of paragraph (1) shall, not 
                later than 90 days after the date of enactment of this 
                subsection and annually on March 31 each year 
                thereafter, transmit to the Secretary, who shall make a 
                report which states how many persons (officers, 
                directors, and employees) received or will receive 
                total compensation in that fiscal year in each of the 
                following amounts:
                          ``(i) over $500,000;
                          ``(ii) over $1,000,000;
                          ``(iii) over $2,000,000;
                          ``(iv) over $3,000,000; and
                          ``(v) over $5,000,000.
                The report shall distinguish amounts the institution 
                considers to be a bonus and the reason for such 
                distinction. The name or identity of persons receiving 
                compensation in such amounts shall not be required in 
                such reports. The Secretary shall make such reports 
                available on the Internet. Any financial institution 
                subject to this paragraph shall issue a retrospective 
                annual report for 2008 and both a prospective and 
                retrospective annual report for each subsequent 
                calendar year until such institution ceases to be 
                subject to this paragraph.
                  ``(B) Total compensation defined.--For purposes of 
                this paragraph, the term `total compensation' includes 
                all cash payments (including without limitation salary, 
                bonus, retention payments), all transfers of property, 
                stock options, sales of stock, and all contributions by 
                the company (or its affiliates) for that person's 
                benefit.''.
  (b) Revision to Rule of Construction.--Section 111(b)(3)(D)(iii) of 
the Emergency Economic Stabilization Act of 2008 (12 U.S.C. 
5221(b)(3)(D)(iii)) is amended by inserting before the period the 
following: ``, except that an entity subject to subsection (e) may not, 
while a capital investment described in that subsection remains 
outstanding, pay a bonus or other supplemental payment that is 
otherwise prohibited by clause (i) without regard to when the 
arrangement to pay such a bonus was entered into''.

                           Purpose and Summary

    The purpose of this bill is to prohibit financial 
institutions that receive direct capital investments under the 
Troubled Asset Relief Program (TARP) established by the 
Emergency Economic Stabilization Act of 2008 (EESA) and 
institutions that receive direct capital investments under the 
Housing and Economic Recovery Act of 2008 (HERA) from paying 
their executives and employees (a) compensation that is 
unreasonable or excessive or (b) bonuses or other supplemental 
payments that are not directly based on performance-based 
standards for the period during which such investments remain 
outstanding. In addition, the bill would ensure that the limits 
on compensation for highly-compensated employees included in 
Title VII of the American Recovery and Reinvestment Act of 2009 
(ARRA), which amended Title I of EESA, apply to highly-
compensated employees of financial institutions that receive 
direct capital investments under TARP for the period during 
which such investments remain outstanding regardless of when a 
compensation agreement was executed.

                   Background and Need for Legislation

    The TARP, established by EESA in October 2008, was designed 
to restore liquidity and stability to the U.S. financial system 
after the market disturbances that began in 2007. The Secretary 
of the Treasury has used authority given to him under the TARP 
to make direct capital investments in various U.S. financial 
institutions. The EESA, as amended by ARRA, contains 
compensation restrictions for highly-paid executives of 
financial institutions that receive assistance under TARP. 
These restrictions, which apply for so long as TARP assistance 
remains outstanding, include a prohibition against a financial 
institution's payment of bonuses, retention awards, or 
incentive compensation, other than payments of long-term 
restricted stock that is not fully vested and is in an amount 
that does not exceed one-third of the individual's total 
compensation. The ARRA included an exception from the 
prohibition to allow bonus payments that were payable pursuant 
to written employment contracts executed on or before February 
11, 2009, as determined by the Secretary.
    Also in response to the market disturbances that began in 
2007, HERA contained provisions specifically designed to 
stabilize the housing finance market, in part by allowing the 
Treasury Secretary to make direct investments in the Federal 
National Mortgage Association (Fannie Mae), the Federal Home 
Loan Mortgage Corporation (Freddie Mac), or a Federal Home Loan 
Bank (collectively, GSEs). Like EESA, HERA contained various 
restrictions on compensation of executives of a GSE receiving a 
direct capital investment from the Treasury.
    In early 2009, it came to light that some large 
institutions that received public funds through a direct 
capital investment from the Treasury under the TARP or HERA 
had, while those investments remained outstanding and while 
performing unsatisfactorily at an institutional level, paid 
sizable bonuses to executives and other highly-compensated 
employees.
    Both the public and many members of Congress expressed 
outrage at the idea that institutions that were depending on 
public funds for their continued existence during a severe 
economic downturn would provide very large bonuses and 
retention payments to their executives and employees while the 
public funds were still outstanding. In response to this 
situation, some members of Congress expressed a desire to 
address any gaps in the existing compensation restrictions 
applicable to such institutions, for example by expanding 
coverage to a broader group of employees, by establishing 
compensation limits that would apply equally to recipients of 
funds under both the TARP and HERA, and by limiting a provision 
that permitted recipients of TARP assistance to make certain 
bonus payments that were due under contracts that were entered 
prior to February 11, 2009.

                                 Hearings

    Discussion of the payment of bonuses to American 
International Group employees took place during two hearings. 
First, the Subcommittee on Capital Markets, Insurance, and 
Government Sponsored Enterprises held a hearing on March 18, 
2009, entitled ``American International Group's Impact on the 
Global Economy: Before, During and After Federal 
Intervention.'' The following witnesses testified: Mr. Scott 
Polakoff, Acting Director, Office of Thrift Supervision; the 
Honorable Joel Ario, Insurance Commissioner, Pennsylvania 
Insurance Department, on behalf of the National Association of 
Insurance Commissioners; Ms. Orice M. Williams, Director, 
Financial Markets and Community Investment, Government 
Accountability Office; Mr. Rodney Clark, Managing Director, 
Insurance Ratings, Standard & Poor's; and Mr. Edward M. Liddy, 
Chairman and Chief Executive Officer, American International 
Group.
    Second, the Committee on Financial Services held a hearing 
on March 24, 2009, entitled ``Oversight of the Federal 
Government's Intervention at American International Group.'' 
The following witnesses testified: The Honorable Timothy F. 
Geithner, Secretary of the Treasury; The Honorable Ben S. 
Bernanke, Chairman, Board of Governors of the Federal Reserve 
System; and Mr. William C. Dudley, President and Chief 
Executive Officer, Federal Reserve Bank of New York.

                         Committee Consideration

    The Committee on Financial Services met in open session on 
March 25, 2009, and on March 26, 2009, ordered H.R. 1664, to 
amend the executive compensation provisions of the Emergency 
Economic Stabilization Act of 2008 to prohibit unreasonable and 
excessive compensation and compensation not based on 
performance standards, as amended, favorably reported to the 
House by a record vote of 38 yeas and 22 nays.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. A 
motion by Mr. Frank to report the bill, as amended, to the 
House with a favorable recommendation was agreed to by a record 
vote of 38 yeas and 22 nays (Record vote no. FC-9). The names 
of Members voting for and against follow.

                                              RECORD VOTE NO. FC-9
----------------------------------------------------------------------------------------------------------------
         Representative             Aye       Nay     Present     Representative      Aye       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank......................        X   ........  .........  Mr. Bachus.......  ........        X   .........
Mr. Kanjorski..................        X   ........  .........  Mr. Castle.......  ........  ........  .........
Ms. Waters.....................  ........  ........  .........  Mr. King (NY)....  ........        X   .........
Mrs. Maloney...................        X   ........  .........  Mr. Royce........        X   ........  .........
Mr. Gutierrez..................        X   ........  .........  Mr. Lucas........  ........        X   .........
Ms. Velazquez..................        X   ........  .........  Mr. Paul.........  ........        X   .........
Mr. Watt.......................        X   ........  .........  Mr. Manzullo.....  ........        X   .........
Mr. Ackerman...................        X   ........  .........  Mr. Jones........        X   ........  .........
Mr. Sherman....................        X   ........  .........  Mrs. Biggert.....  ........        X   .........
Mr. Meeks......................        X   ........  .........  Mr. Miller (CA)..  ........  ........  .........
Mr. Moore (KS).................        X   ........  .........  Mrs. Capito......  ........        X   .........
Mr. Capuano....................        X   ........  .........  Mr. Hensarling...  ........        X   .........
Mr. Hinojosa...................  ........  ........  .........  Mr. Garrett (NJ).  ........        X   .........
Mr. Clay.......................  ........  ........  .........  Mr. Barrett (SC).  ........        X   .........
Mrs. McCarthy..................        X   ........  .........  Mr. Gerlach......  ........        X   .........
Mr. Baca.......................  ........  ........  .........  Mr. Neugebauer...  ........        X   .........
Mr. Lynch......................        X   ........  .........  Mr. Price (GA)...  ........        X   .........
Mr. Miller (NC)................        X   ........  .........  Mr. McHenry......  ........  ........  .........
Mr. Scott......................        X   ........  .........  Mr. Campbell.....  ........        X   .........
Mr. Green......................        X   ........  .........  Mr. Putnam.......  ........        X   .........
Mr. Cleaver....................        X   ........  .........  Mrs. Bachmann....  ........  ........  .........
Ms. Bean.......................        X   ........  .........  Mr. Marchant.....  ........        X   .........
Ms. Moore (WI).................        X   ........  .........  Mr. McCotter.....  ........        X   .........
Mr. Hodes......................        X   ........  .........  Mr. McCarthy.....  ........        X   .........
Mr. Ellison....................  ........  ........  .........  Mr. Posey........  ........        X   .........
Mr. Klein......................        X   ........  .........  Ms. Jenkins......  ........        X   .........
Mr. Wilson.....................        X   ........  .........  Mr. Lee..........  ........        X   .........
Mr. Perlmutter.................        X   ........  .........  Mr. Paulsen......  ........  ........  .........
Mr. Donnelly...................        X   ........  .........  Mr. Lance........  ........        X   .........
Mr. Foster.....................        X   ........  .........
Mr. Carson.....................        X   ........  .........
Mr. Speier.....................        X   ........  .........
Mr. Childers...................        X   ........  .........
Mr. Minnick....................        X   ........  .........
Mr. Adler......................        X   ........  .........
Ms. Kilroy.....................        X   ........  .........
Mr. Driehaus...................        X   ........  .........
Ms. Kosmas.....................  ........  ........  .........
Mr. Grayson....................        X   ........  .........
Mr. Himes......................        X   ........  .........
Mr. Peters.....................        X   ........  .........
Mr. Maffei.....................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

    During the consideration of the bill, the following 
amendment was disposed of by a record vote. The names of 
Members voting for and against follow:
    An amendment by Mr. Miller of North Carolina, No. 2, 
regarding consultation with the Chairperson of Congressional 
Oversight Panel, was agreed to by a record vote of 36 yeas and 
24 nays (Record vote no. FC-8):

                                              RECORD VOTE NO. FC-8
----------------------------------------------------------------------------------------------------------------
         Representative             Aye       Nay     Present     Representative      Aye       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank......................        X   ........  .........  Mr. Bachus.......  ........        X   .........
Mr. Kanjorski..................        X   ........  .........  Mr. Castle.......  ........  ........  .........
Ms. Waters.....................  ........  ........  .........  Mr. King (NY)....  ........        X   .........
Mrs. Maloney...................        X   ........  .........  Mr. Royce........  ........        X   .........
Mr. Gutierrez..................        X   ........  .........  Mr. Lucas........  ........        X   .........
Ms. Velazquez..................        X   ........  .........  Mr. Paul.........  ........        X   .........
Mr. Watt.......................        X   ........  .........  Mr. Manzullo.....  ........        X   .........
Mr. Ackerman...................        X   ........  .........  Mr. Jones........  ........        X   .........
Mr. Sherman....................        X   ........  .........  Mrs. Biggert.....  ........        X   .........
Mr. Meeks......................        X   ........  .........  Mr. Miller (CA)..  ........  ........  .........
Mr. Moore (KS).................        X   ........  .........  Mrs. Capito......  ........        X   .........
Mr. Capuano....................        X   ........  .........  Mr. Hensarling...  ........        X   .........
Mr. Hinojosa...................  ........  ........  .........  Mr. Garrett (NJ).  ........        X   .........
Mr. Clay.......................  ........  ........  .........  Mr. Barrett (SC).  ........        X   .........
Mrs. McCarthy..................        X   ........  .........  Mr. Gerlach......  ........        X   .........
Mr. Baca.......................  ........  ........  .........  Mr. Neugebauer...  ........        X   .........
Mr. Lynch......................        X   ........  .........  Mr. Price (GA)...  ........        X   .........
Mr. Miller (NC)................        X   ........  .........  Mr. McHenry......  ........  ........  .........
Mr. Scott......................        X   ........  .........  Mr. Campbell.....  ........        X   .........
Mr. Green......................        X   ........  .........  Mr. Putnam.......  ........        X   .........
Mr. Cleaver....................        X   ........  .........  Mrs. Bachmann....  ........  ........  .........
Ms. Bean.......................        X   ........  .........  Mr. Marchant.....  ........        X   .........
Ms. Moore (WI).................        X   ........  .........  Mr. McCotter.....  ........        X   .........
Mr. Hodes......................        X   ........  .........  Mr. McCarthy.....  ........        X   .........
Mr. Ellison....................  ........  ........  .........  Mr. Posey........  ........        X   .........
Mr. Klein......................        X   ........  .........  Ms. Jenkins......  ........        X   .........
Mr. Wilson.....................        X   ........  .........  Mr. Lee..........  ........        X   .........
Mr. Perlmutter.................        X   ........  .........  Mr. Paulsen......  ........  ........  .........
Mr. Donnelly...................        X   ........  .........  Mr. Lance........  ........        X   .........
Mr. Foster.....................        X   ........  .........
Mr. Carson.....................        X   ........  .........
Mr. Speier.....................        X   ........  .........
Mr. Childers...................        X   ........  .........
Mr. Minnick....................        X   ........  .........
Mr. Adler......................        X   ........  .........
Ms. Kilroy.....................        X   ........  .........
Mr. Driehaus...................        X   ........  .........
Ms. Kosmas.....................  ........  ........  .........
Mr. Grayson....................        X   ........  .........
Mr. Himes......................        X   ........  .........
Mr. Peters.....................        X   ........  .........
Mr. Maffei.....................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

    The following amendments were also considered:
    An amendment by Mr. Frank, No. 1, a manager's amendment, 
was agreed to by a voice vote.
    An amendment by Mr. Posey, No. 3, regarding a prohibition 
relating to technical defaults, was offered and withdrawn.
    An amendment by Mr. Sherman, No. 4, providing for a 
reporting requirement, was agreed to by a voice vote.
    An amendment by Mr. Sherman, No. 5, regarding unreasonable 
or excessive compensation, was not agreed to by a voice vote.
    An amendment by Mr. Frank, No. 6, clarifying direct capital 
investment, was agreed to by a voice vote.

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee held a hearing and made 
findings that are reflected in this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee establishes the 
following performance related goals and objectives for this 
legislation:
    The purpose of this bill is to prohibit financial 
institutions that receive direct capital investments under the 
Troubled Asset Relief Program and institutions that receive 
direct capital investments under the Housing and Economic 
Recovery Act of 2008 from paying their executives and employees 
(a) compensation that is unreasonable or excessive or (b) 
bonuses or other supplemental payments that are not directly 
based on performance-based standards for the period during 
which such investments remain outstanding.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                  Congressional Budget Office Estimate

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, March 30, 2009.
Hon. Barney Frank,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1664, a bill to 
amend the executive compensation provisions of the Emergency 
Economic Stabilization Act of 2008 to prohibit unreasonable and 
excessive compensation and compensation not based on 
performance standards.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Jeff Holland.
            Sincerely,
                                      Douglas W. Elmendorf,
                                                          Director.
    Enclosure.

H.R. 1664--A bill to amend the executive compensation provisions of the 
        Emergency Economic Stabilization Act of 2008 to prohibit 
        unreasonable and excessive compensation and compensation not 
        based on performance standards

    H.R. 1664 would add restrictions on compensation for 
executives and employees of institutions receiving funds from 
the Troubled Asset Relief Program (TARP) or who work for Fannie 
Mae, Freddie Mac, or the Federal Home Loan Banks. Such 
restrictions would prohibit bonuses or other additions to base 
salary if certain standards, as determined by the Secretary of 
the Treasury in conjunction with other organizations, are not 
met. Financial institutions subject to the requirements of the 
bill would have to report information on the compensation of 
employees that receive income above certain levels. CBO 
estimates that enacting H.R. 1664 would have no significant 
impact on the federal budget and would not affect direct 
spending or revenues.
    H.R. 1664 contains no intergovernmental mandates as defined 
in the Unfunded Mandates Reform Act (UMRA) and would not affect 
the budgets of state, local, or tribal governments.
    H.R. 1664 would impose a private-sector mandate, as defined 
in UMRA, to the extent that it would invalidate existing 
compensation arrangements between some financial institutions 
that have received funds from the TARP and executives or 
employees of those institutions. The costs of complying with 
the mandate would be the value of the compensation forgone as a 
result of the bill's prohibition on compensation that is 
``unreasonable or excessive''. Those costs would depend in part 
on the standards governing unreasonable or excessive 
compensation that would be established by the Secretary. 
Because of uncertainty about those standards and a lack of 
information about existing compensation arrangements, CBO 
cannot determine whether the cost, if any, would exceed the 
annual threshold established in UMRA for private-sector 
mandates ($139 million in 2009, adjusted annually for 
inflation).
    The CBO staff contact for this estimate is Jeff Holland. 
The estimate was approved by Theresa Gullo, Deputy Assistant 
Director for Budget Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional Authority of Congress to enact this legislation 
is provided by Article 1, section 8, clause 1 (relating to the 
general welfare of the United States) and clause 3 (relating to 
the power to regulate interstate commerce).

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

                         Earmark Identification

    H.R. 1664 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9 of rule XXI.

             Section-by-Section Analysis of the Legislation


Section 1. Prohibition on certain compensation

            Scope of coverage
    This section applies to an institution that has received or 
receives a direct capital investment under the TARP or HERA 
during the period in which that direct capital investment 
remains outstanding. An institution that has not itself 
received a direct capital investment from the Treasury is not 
subject to the restrictions of this section as a result of 
doing business with an institution that has received a direct 
capital investment, or as a result of participating in another 
TARP-related program that involves an interaction with an 
institution that has received a direct capital investment.
              Subsection (a)--Prohibition on certain compensation not 
                    based on performance standards
    This subsection amends section 111 of EESA (12 U.S.C. 5221) 
to add a new subsection (e) that would prohibit certain 
compensation that is not based on performance standards 
established the Treasury Secretary and require institutions 
subject to these prohibitions to report certain compensation 
data to the Treasury Secretary annually.
    Specifically, new subsection (e)(1) would add restrictions 
that would apply broadly to all executives and employees of an 
institution that has received a direct capital investment from 
the Treasury under the TARP or HERA while that investment 
remains outstanding. Regardless of when a compensation payment 
arrangement was entered into, an institution subject to this 
provision would be prohibited from:
           paying any compensation that is 
        ``unreasonable or excessive,'' as defined in standards 
        established by the Treasury Secretary; or
           paying any bonus or other supplemental 
        payment that is not directly based on performance-based 
        measures set forth in standards establish by the 
        Treasury Secretary.
    These restrictions do not apply to a longevity bonus or a 
payment in the form of restricted stock.
    New subsection (e)(2) would require the Treasury Secretary 
to establish the unreasonable-or-excessive and performance-
based bonus standards that apply for purposes of paragraph 
(e)(1) within 30 days of the bill's enactment. In so doing, he 
would be required to consult with the Chairperson of the 
Congressional Oversight Panel and obtain approval of the 
agencies that are members of the Federal Financial Institutions 
Examination Council.
    New subsection (e)(3) would require an institution that is 
subject to subsection (e) to submit an annual report to the 
Treasury Secretary stating how many executives and employees 
received or will receive total compensation that exceeds 
specified dollar amounts during the fiscal year. This provision 
does not require reporting of individual compensation data, but 
rather requires reporting only of the aggregate number of 
individuals who received total compensation exceeding the 
specified dollar amounts. The Secretary shall make such reports 
available on the Internet.
            Subsection (b)--Revision to rule of construction
    This subsection revises the rule of construction in section 
111(b)(3)(D)(iii) of EESA (12 U.S.C. 5221(b)(3)(D)(iii)) in a 
manner that would broaden the application of the existing 
restrictions on bonuses, retention awards, and incentive 
compensation for highly-compensated employees, which are set 
forth in section 111(b)(3)(D). Specifically, this subsection 
would provide that these restrictions, which were added to EESA 
by Title VII of ARRA, would apply to an institution that has 
received a direct capital investment under the TARP while such 
investment remained outstanding, without regard to when the 
arrangement to pay such compensation was entered into.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italics, existing law in which no change 
is proposed is shown in roman):

              EMERGENCY ECONOMIC STABILIZATION ACT OF 2008


DIVISION A--EMERGENCY ECONOMIC STABILIZATION

           *       *       *       *       *       *       *


TITLE I--TROUBLED ASSETS RELIEF PROGRAM

           *       *       *       *       *       *       *


SEC. 111. EXECUTIVE COMPENSATION AND CORPORATE GOVERNANCE.

  (a) * * *
  (b) Executive Compensation and Corporate Governance.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Specific requirements.--The standards established 
        under paragraph (2) shall include the following:
                  (A) * * *

           *       *       *       *       *       *       *

                  (D)(i) * * *

           *       *       *       *       *       *       *

                  (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 Secretary, 
                except that an entity subject to subsection (e) 
                may not, while a capital investment described 
                in that subsection remains outstanding, pay a 
                bonus or other supplemental payment that is 
                otherwise prohibited by clause (i) without 
                regard to when the arrangement to pay such a 
                bonus was entered into.

           *       *       *       *       *       *       *

  (e) Prohibition on Certain Compensation Not Based on 
Performance Standards.--
          (1) Prohibition.--No financial institution that has 
        received or receives a direct capital investment under 
        the Troubled Assets Relief Program under this title, or 
        with respect to the Federal National Mortgage 
        Association, the Federal Home Loan Mortgage 
        Corporation, or a Federal home loan bank, under the 
        amendments made by section 1117 of the Housing and 
        Economic Recovery Act of 2008, may, while that capital 
        investment remains outstanding, make a compensation 
        payment, other than a longevity bonus or a payment in 
        the form of restricted stock, to any executive or 
        employee under any existing compensation arrangement, 
        or enter into a new compensation payment arrangement, 
        if such compensation payment or compensation payment 
        arrangement--
                  (A) provides for compensation that is 
                unreasonable or excessive, as defined in 
                standards established by the Secretary, in 
                consultation with the Chairperson of the 
                Congressional Oversight Panel established under 
                section 125, in accordance with paragraph (2); 
                or
                  (B) includes any bonus or other supplemental 
                payment that is not directly based on 
                performance-based measures set forth in 
                standards established by the Secretary in 
                accordance with paragraph (2).
        Provided that, nothing in this paragraph applies to an 
        institution that did business with a recipient of a 
        direct capital investment under the TARP.
          (2) Standards.--Not later than 30 days after the date 
        of enactment of this subsection, the Secretary, with 
        the approval of the agencies that are members of the 
        Federal Financial Institutions Examination Council, and 
        in consultation with the Chairperson of the 
        Congressional Oversight Panel established under section 
        125, shall establish the following:
                  (A) Unreasonable and excessive compensation 
                standards.--Standards that define 
                ``unreasonable or excessive'' for purposes of 
                subparagraph (1)(A).
                  (B) Performance-based standards.--Standards 
                for performance-based measures that a financial 
                institution must apply when determining whether 
                it may provide a bonus or retention payment 
                under paragraph (1)(B). Such performance 
                measures shall include--
                          (i) the stability of the financial 
                        institution and its ability to repay or 
                        begin repaying the United States for 
                        any capital investment received under 
                        this title;
                          (ii) the performance of the 
                        individual executive or employee to 
                        whom the payment relates;
                          (iii) adherence by executives and 
                        employees to appropriate risk 
                        management requirements; and
                          (iv) other standards which provide 
                        greater accountability to shareholders 
                        and taxpayers.
          (3) Reporting requirement.--
                  (A) In general.--Any financial institution 
                that is subject to the requirements of 
                paragraph (1) shall, not later than 90 days 
                after the date of enactment of this subsection 
                and annually on March 31 each year thereafter, 
                transmit to the Secretary, who shall make a 
                report which states how many persons (officers, 
                directors, and employees) received or will 
                receive total compensation in that fiscal year 
                in each of the following amounts:
                          (i) over $500,000;
                          (ii) over $1,000,000;
                          (iii) over $2,000,000;
                          (iv) over $3,000,000; and
                          (v) over $5,000,000.
                The report shall distinguish amounts the 
                institution considers to be a bonus and the 
                reason for such distinction. The name or 
                identity of persons receiving compensation in 
                such amounts shall not be required in such 
                reports. The Secretary shall make such reports 
                available on the Internet. Any financial 
                institution subject to this paragraph shall 
                issue a retrospective annual report for 2008 
                and both a prospective and retrospective annual 
                report for each subsequent calendar year until 
                such institution ceases to be subject to this 
                paragraph.
                  (B) Total compensation defined.--For purposes 
                of this paragraph, the term ``total 
                compensation'' includes all cash payments 
                (including without limitation salary, bonus, 
                retention payments), all transfers of property, 
                stock options, sales of stock, and all 
                contributions by the company (or its 
                affiliates) for that person's benefit.
  [(e)] (f) Shareholder Approval of Executive Compensation.--
          (1) * * *

           *       *       *       *       *       *       *

  [(f)] (g) Review of Prior Payments to Executives.--
          (1) * * *

           *       *       *       *       *       *       *

  [(g)] (h) No Impediment to Withdrawal by TARP Recipients.--
Subject to consultation with the appropriate Federal banking 
agency (as that term is defined in section 3 of the Federal 
Deposit Insurance Act), if any, the Secretary shall permit a 
TARP recipient to repay any assistance previously provided 
under the TARP to such financial institution, without regard to 
whether the financial institution has replaced such funds from 
any other source or to any waiting period, and when such 
assistance is repaid, the Secretary shall liquidate warrants 
associated with such assistance at the current market price.
  [(h)] (i) Regulations.--The Secretary shall promulgate 
regulations to implement this section.

           *       *       *       *       *       *       *


                            DISSENTING VIEWS

    H.R. 1664 amends the Emergency Economic Stabilization Act 
of 2008 (EESA) to prohibit any recipient of a ``capital 
investment'' by the Federal government under the Troubled Asset 
Relief Program (TARP) or the Housing and Economic Recovery Act 
of 2008 (HERA), including Fannie Mae, Freddie Mac, and the 
Federal Home Loan Banks, from making any compensation payments 
that are ``unreasonable or excessive,'' and any bonus payment 
that is not ``performance-based,'' so long as such an 
investment is outstanding. The bill would prohibit any such 
payments to any executive or employee under any existing or 
future compensation arrangement. It gives the Secretary of the 
Treasury the authority, in consultation with the Chairperson of 
the TARP Congressional Oversight Panel and with the approval of 
the financial regulatory agencies that comprise the Federal 
Financial Institutions Examination Council (FFIEC), to define 
what constitutes ``unreasonable or excessive'' compensation and 
to establish ``performance-based'' measures for bonuses. In 
addition, the bill essentially repeals the so-called ``Dodd 
amendment'' contained in the economic stimulus bill, so that 
bonus restrictions imposed on TARP recipients apply regardless 
of the date on which the bonus agreement was entered into.
    House Republicans strongly object to excessive compensation 
and bonuses paid to executives of firms that have received 
taxpayer dollars, particularly those, like the American 
International Group (AIG), that will almost certainly never be 
able to pay a large portion of that money back. The recent 
revelations that the Democratic administration and Democratic 
Congress inserted language in the stimulus bill insulating from 
legal challenge some $165 million in bonuses paid to executives 
at AIG, whose failure has cost taxpayers $173 billion, have 
provoked justifiable public outrage. H.R. 1664 is an effort to 
cover the Democratic Majority's tracks, and ``change the 
subject'' from the administration's failure to exercise 
adequate oversight of the taxpayer dollars expended to prop up 
AIG.
    While many House Republicans did not support the 
establishment of the Troubled Asset Relief Program--and most 
voted to disapprove release of the second $350 billion tranche 
of the TARP funds--it is now Congress' responsibility to ensure 
that the program works as effectively as possible and that the 
taxpayers' investment is returned as quickly as possible. 
Unfortunately, this overly broad and punitive legislation will 
work at cross-purposes with that objective. The success of the 
taxpayer-subsidized public-private partnerships created by the 
Obama administration to purge toxic assets from banks' balance 
sheets hinges almost entirely on the willingness of the private 
sector to invest its capital alongside the government. As 
drafted, H.R. 1664's executive compensation restrictions would 
not extend to these private sector investors. However, the 
legislation does send an unmistakable message to financial 
institutions considering whether to enter into partnership with 
the government that Congress can and will change the rules of 
the game at any time. This will inevitably discourage 
participation in a program that the Obama administration has 
characterized as essential to stabilizing the financial system.
    During consideration of H.R. 1664, the Committee adopted on 
a straight party-line vote an amendment offered by Rep. Brad 
Miller (D-NC) requiring the Secretary of the Treasury to 
consult with the Chair of the TARP Congressional Oversight 
Panel (COP) in determining what constitutes unreasonable or 
excessive compensation and performance-based compensation 
measures. Given its limited mandate, the Congressional 
Oversight Panel has no expertise on the issue of executive 
compensation, no expertise on the subject of corporate 
governance, and no formal legal standing even to issue 
recommendations on policy questions. As its name might 
indicate, the Congressional Oversight Panel is strictly an 
oversight panel, and it was never intended nor is it authorized 
to set policy. Even overlooking the statutory limitations on 
the Panel from the EESA, the fact remains that the 
Congressional Oversight Panel has not conducted a single public 
hearing on compensation that might have given it any particular 
insight on the subject. Moreover, the Miller Amendment poses a 
clear conflict of interest for the Congressional Oversight 
Panel. By requiring the Chair of the Panel to have a 
consultative role with the Secretary on TARP decisions related 
to compensation, the line between decision makers and oversight 
authorities will be impossibly blurred, potentially calling 
into question the reliability of any future oversight work the 
Panel might ultimately conduct on executive compensation 
matters.
    The easy solution throughout the recent period of financial 
turmoil has been to hand the taxpayer the bill for rescuing 
``too big to fail'' financial institutions without evaluating 
the long-term consequences. Rather than projecting the Federal 
government further and further into the private economy, we 
should, instead, formalize and execute a responsible exit 
strategy that ensures taxpayers are repaid. The best approach 
to protecting the taxpayers' investment in private business is 
through stronger oversight and accountability, not by further 
entrenching government in the operations and management of 
hundreds of businesses across America, many of which are 
community and regional banks that did nothing to create the 
current crisis. Indeed, given the government's track record in 
piling up huge deficits and mismanaging a wide range of Federal 
programs, there is little reason to believe that it will have 
any more success in running private enterprises.

                                   Spencer Bachus.
                                   Randy Neugebauer.
                                   Donald Manzullo.
                                   Peter King.
                                   Scott Garrett.
                                   Bill Posey.
                                   Christopher Lee.