12 C.F.R. PART 1770—EXECUTIVE COMPENSATION
Title 12 - Banks and Banking
Authority: 12 U.S.C. 1452(h)(2), 1723a(d)(3)(B), 4501(6), 4502(3), 4502(7), 4513, 4514, 4517, 4518(a), 4631, 4632, 4636, 4641.
Source: 66 FR 47554, Sept. 12, 2001, unless otherwise noted.
(a) Authority. Title XIII of the Housing and Community Development Act of 1992, Pub. L. No. 102–550, entitled the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (“the Act”) (12 U.S.C. 4501 et seq.), established the Office of Federal Housing Enterprise Oversight (“OFHEO”) as an independent office within the Department of Housing and Urban Development. In general, OFHEO is the safety and soundness regulator of two housing-related government sponsored enterprises: the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) (collectively, “the Enterprises”). The supervisory responsibilities of the Director of OFHEO (the “Director”) include oversight of compensation provided by the Enterprises to their executive officers. (b) Scope. The procedures set forth in this part apply to OFHEO's oversight of executive compensation under the following two statutory mandates: (1) Prohibition of excessive compensation. The Act requires the Director to prohibit an Enterprise from providing compensation to any executive officer that is not reasonable and comparable with that paid by other similar businesses to executives doing similar work, i.e., having similar duties and responsibilities. Businesses used for comparison purposes include publicly held financial institutions or major financial services companies. (12 U.S.C. 4518(a)). To effectuate this compensation oversight responsibility, the Act provides that the Director has full authority to take such actions as the Director determines are necessary. (12 U.S.C. 4513(8)). However, the Director may not prescribe or set a specific level or range of compensation for executive officers of the Enterprises. (12 U.S.C. 4518(b)). (2) Prior approval of termination benefits. The Enterprises' enabling statutes (“charter acts”) similarly provide that an Enterprise may not enter into any agreement or contract to provide any payment of money or other thing of current or potential value in connection with the termination of employment of an executive officer unless the agreement or contract is approved in advance by the Director. The Director may only approve termination benefits that are comparable to benefits provided by other public or private entities involved in financial services and housing interests to executives with comparable duties and responsibilities. Agreements or contracts that provide for termination payments to executives that were entered into before October 28, 1992 are not retroactively subject to approval or disapproval by the Director. However, a renegotiation, amendment or change to such an agreement or contract entered into on or before October 28, 1992 shall be considered as entering into an agreement or contract that is subject to approval by the Director. (Section 309(d)(3)(B); 12 U.S.C. 1723a(d)(3)(B) of Fannie Mae's Charter Act; Section 303(h)(2); 12 U.S.C. 1452(h)(2) of Freddie Mac's Corporation Act) In exercising responsibilities related to executive compensation, the Director has established a structured process for the submission of relevant information by each Enterprise. This part codifies those procedures and clarifies the terms used therein in order to facilitate and enhance the efficiency of OFHEO's oversight. The following definitions apply to the terms used in this part: (a) The Act is Title XIII of the Housing and Community Development Act of 1992, Pub. L. No. 102–550, Oct. 28, 1992, 106 Stat. 3672, 3941 through 4012 (1993), 12 U.S.C. 4501 et seq., separately entitled the “Federal Housing Enterprises Financial Safety and Soundness Act of 1992.” (b) Affiliate means, except as provided by the Director, any entity that controls, is controlled by, or is under common control with, an Enterprise. (c) Charter acts mean the Federal National Mortgage Association Charter Act and the Federal Home Loan Mortgage Corporation Act, which are codified at 12 U.S.C. 1716 through 1723i and 12 U.S.C. 1451 through 1459, respectively. (d) Compensation means any payment of money or the provision of any other thing of current or potential value in connection with employment. Compensation includes all direct and indirect payments of benefits, both cash and non-cash, granted to or for the benefit of any executive officer, including, but not limited to, payments and benefits derived from an employment contract compensation or benefit agreement, fee arrangement, perquisite, stock option plan, post employment benefit or other compensatory arrangement. (e) Director means the Director of OFHEO or his or her designee. (f) Enterprise means the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation and, except as provided by the Director, any affiliate thereof. (g)(1) Executive officer means, with respect to an Enterprise: (i) The chairman of the board of directors, chief executive officer, chief financial officer, chief operating officer, president, vice chairman, any executive vice president, and any individual who performs functions similar to such positions whether or not the individual has an official title; and (ii) Any senior vice president (SVP) or other individual with similar responsibilities, without regard to title: (A) Who is in charge of a principal business unit, division or function, or (B) Who reports directly to the Enterprise's chairman of the board of directors, vice chairman, president or chief operating officer. (2) The Director shall inform the Enterprises of those officers covered by this definition. (h) OFHEO means the Office of Federal Housing Enterprise Oversight. (a) Submission of information to OFHEO. All information required to be filed for purposes of this part is to be provided in a timely fashion by each Enterprise to OFHEO's Associate Director of the Office of Policy Analysis and Research, as specified in this section, or as designated by the Director. (b) Categories of information relating to prohibition of excessive compensation. The following materials, unless otherwise specified, shall be provided by each Enterprise to OFHEO for review within one week after the specified action or event: (1) Resolutions, including supporting materials and related reports, from meetings of the Enterprise's committee responsible for compensation when the committee takes any action regarding a compensation matter that under the committee's authority is effective without further action by the committee or the board of directors; (2) Resolutions, including supporting materials and related reports (not otherwise provided to OFHEO under paragraph (b)(1) of this section), from meetings of the board of directors relating to executive compensation when the board of directors takes any action regarding a compensation matter that is effective without any further action by the board of directors; (3) Minutes, including supporting materials and related reports, when adopted by the committee responsible for compensation and those portions of minutes of the board of directors, including supporting materials and related reports, related to compensation matters (except for materials previously provided under paragraphs (b)(1) or (2) of this section); (4) General benefit plans applicable to executive officers when adopted or amended; (5) Any study conducted by or on behalf of an Enterprise with respect to compensation of executive officers; (6) The Enterprise's annual compensation report to Congress when submitted; (7) A current organizational chart when changes occur affecting the status of executive officers under this part; (8) Proxy statements when issued; and, (9) Such other information as deemed appropriate by the Director, except that submissions required under this paragraph shall not include materials related to the performance of specific individuals. (c) Timing of submissions related to prior approval of termination benefits. All relevant information, except as provided under §1770.5(a), should be provided to OFHEO, unless already provided under paragraph (b) of this section: (1) Before an Enterprise enters into any agreement or contract with a new or existing executive officer that includes termination benefits; (2) Before an Enterprise makes any extension or other amendment to such an agreement or contract; (3) Before an Enterprise takes any other action to provide termination benefits to a specific executive officer, regardless of how effected; or (4) When an Enterprise makes any changes to the termination provisions of any compensation or benefit program affecting multiple executive officers. (d) Specific information required for calculation of termination benefits. For submissions under paragraph (c) of this section, an Enterprise shall submit to OFHEO the following materials: (1) The details of the agreement or program change, e.g., employment agreements, termination agreements, severance agreements, and portions of minutes of the board of directors relating to executive compensation and minutes and supporting materials of the compensation Committee of the board of directors; (2) All information, data, assumptions and calculations for the potential total dollar value or range of values of the benefits provided, such as but not limited to salary, bonus opportunity, short-term incentives, long-term incentives, special incentives and pension provisions or related contract or benefit terms; and (3) Such other information deemed appropriate by the Director, except that information required to be submitted under paragraph (c) of this section or under this paragraph shall not include information on benefit plans of general applicability. (a) An employment agreement or contract subject to the Director's prior approval, as set forth in §1770.1(b)(2), may be entered into prior to that approval, provided that such agreement or contract specifically provides that termination benefits under the agreement or contract shall not be effective and no payments shall be made thereunder unless and until approved by OFHEO. Such notice should make clear that alteration of benefit plans subsequent to OFHEO approval under this section, that affect final termination benefits of an executive officer, requires review at the time of the individual's termination from the Enterprise and prior to the payment of any benefits. (b) Failure by an Enterprise to comply with the requirements this regulation may warrant remedial action by OFHEO. Such action may be taken in the form determined appropriate by the Director and may be taken separately from, in conjunction with, or in addition to any other corrective or remedial action, including an enforcement action to require an individual to make restitution to or reimbursement to the Enterprise of excessive compensation or inappropriately paid termination benefits.
Title 12: Banks and Banking
PART 1770—EXECUTIVE COMPENSATION
Section Contents
§ 1770.1 Authority and scope.
§ 1770.2 Purpose.
§ 1770.3 Definitions.
§ 1770.4 Submission requirements.
§ 1770.5 Compliance.
§ 1770.1 Authority and scope.
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§ 1770.2 Purpose.
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§ 1770.3 Definitions.
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§ 1770.4 Submission requirements.
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§ 1770.5 Compliance.
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