Golden Parachute Payments, 5101-5102 [E9-1517]

Download as PDF 5101 Rules and Regulations Federal Register Vol. 74, No. 18 Thursday, January 29, 2009 This section of the FEDERAL REGISTER contains regulatory documents having general applicability and legal effect, most of which are keyed to and codified in the Code of Federal Regulations, which is published under 50 titles pursuant to 44 U.S.C. 1510. The Code of Federal Regulations is sold by the Superintendent of Documents. Prices of new books are listed in the first FEDERAL REGISTER issue of each week. FEDERAL HOUSING FINANCE AGENCY 12 CFR Part 1231 RIN 2590–AA08 Golden Parachute Payments AGENCY: Federal Housing Finance Agency. ACTION: Final rule. SUMMARY: The Federal Housing Finance Agency (FHFA) is issuing a final regulation that sets forth factors to be considered by the Director of FHFA in acting upon the Director’s authority to limit golden parachute payments to entity-affiliated parties in connection with the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, and the Federal Home Loan Banks. DATES: Effective Date: January 29, 2009. FOR FURTHER INFORMATION CONTACT: Alfred M. Pollard, General Counsel, (202) 414–3788 (not a toll-free number), Federal Housing Finance Agency, Fourth Floor, 1700 G Street, NW., Washington, DC 20552. The telephone number for the Telecommunications Device for the Deaf is (800) 877–8339. SUPPLEMENTARY INFORMATION: I. Background rmajette on PRODPC74 with RULES General Background The Housing and Economic Recovery Act of 2008 (HERA), Public Law 110– 289, 122 Stat. 2654, amended the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4501 et seq.) (Act) to establish FHFA as an independent agency of the Federal Government.1 FHFA was established to oversee the prudential operations of the Federal National 1 See Division A, titled the ‘‘Federal Housing Finance Regulatory Reform Act of 2008,’’ Title I, Section 1101 of HERA. VerDate Nov<24>2008 15:24 Jan 28, 2009 Jkt 217001 Mortgage Association, the Federal Home Loan Mortgage Corporation (collectively, Enterprises), and the Federal Home Loan Banks (Banks) (collectively, regulated entities) and to ensure that they operate in a safe and sound manner including being capitalized adequately; foster liquid, efficient, competitive and resilient national housing finance markets; comply with the Act and rules, regulation, guidelines and orders issued under the Act, and the respective authorizing statutes of the regulated entities; and carry out their missions through activities authorized and consistent with the Act and their authorizing statutes; and, that the activities and operations of the regulated entities are consistent with the public interest. The Office of Federal Housing Enterprise Oversight (OFHEO) and the Federal Housing Finance Board (FHFB) will be abolished one year after enactment of the HERA. However, the regulated entities continue to operate under regulations promulgated by OFHEO and FHFB until such regulations are superseded by regulations promulgated by the FHFA. Background on Golden Parachute Payments Section 1114 of HERA amended 12 U.S.C. 4518 to provide additional authorities for FHFA in addressing certain compensation and benefits, specifically golden parachute payments and indemnification payments. HERA added a new paragraph (e) to section 4518 addressing regulation and prohibition of these benefits. While paragraphs (e)(1) and (e)(3)–(6) are self executing, Congress provided that for paragraph (e)(2) addressing factors to be taken into account when acting regarding golden parachutes and indemnification, FHFA prescribe, by regulation, factors to be considered. The factors set forth in paragraph (e)(2) are explicit and provide guidance to the Director in taking an action under the statute. FHFA published an Interim Final Rule that was effective on September 16, 2008, the date of publication in the Federal Register. The rule, which was corrected on September 19 and September 23, 2008, addresses only PO 00000 Frm 00001 Fmt 4700 Sfmt 4700 golden parachute payments.2 During the public notice and comment period, which closed on October 31, 2008, FHFA requested comment on paragraph (2) of section 4518(e), i.e., factors to be taken into account by FHFA when acting regarding golden parachutes. The Interim Final Rule also provided that FHFA would consider other comments on other aspects of the regulation for future revision, if necessary or appropriate. II. Comment on the Interim Final Rule General Comment FHFA received comments from individuals in the general public, nine Federal Home Loan Banks, and Fannie Mae. In general, the public commented that severance should not be paid to departing executives of the Enterprises, particularly the Chief Executive Officers. The consensus among these individuals was that any such payment would be excessive, irresponsible, and grossly unfair to taxpayers. The Banks commented that they shared widespread public concern over excessive golden parachute payments paid by failed or failing companies. The Banks noted that fulfillment of their housing and liquidity mission, consistent with safe and sound operation, demands a high caliber workforce, and that reasonable and customary separation benefits are an important and appropriate component of the Banks’ retention, hiring, and workforce management efforts. To that end, the Banks requested that FHFA consider standards set forth in the Federal Deposit Insurance Corporation (FDIC) regulations on golden parachute payments, which were promulgated pursuant to the Federal Deposit Insurance Act (FDI Act), for guidance as FHFA considers changes to the Interim Final Rule.3 The Banks requested consideration of the FDIC regulations, as the legislative provisions on which they 2 73 FR 53356 (September 16, 2008), with Correcting Amendments at 73 FR 54309 (September 19, 2008) and at 73 FR 54673 (September 23, 2008), to be codified at 12 CFR 1231. The portion of the Interim Final Rule published on September 16, 2008, which relates to indemnification payments, is being promulgated by separate rulemaking that is subject to public comment. See Proposed Amendment for Golden Parachute and Indemnification Payments, 73 FR 67424 (November 14, 2008). 3 See 61 FR 5926 (February 15, 1996) and 12 CFR part 359. E:\FR\FM\29JAR1.SGM 29JAR1 5102 Federal Register / Vol. 74, No. 18 / Thursday, January 29, 2009 / Rules and Regulations are based are similar to the HERA and represent industry practice. For these reasons, many of the Banks’ comments suggest specific aspects of the FDIC regulations that the Banks believe should be incorporated into the Final Rule. Similarly, Fannie Mae suggested that FHFA revise the Interim Final Rule to more closely follow the FDIC regulations, and also the Farm Credit System Insurance Corporation (FCSIC) regulations, which adopted the FDIC’s approach.4 Fannie Mae commented that the FDIC and FCSIC regulations implement legislation similar to the HERA so conformance with regulations would foster uniformity in regulation, public perception of fairness, and competition on a level regulatory playing field for executive talent. Fannie Mae also stated such conformance would reduce administrative burden because of existing guidance and precedent. FHFA gave careful consideration to the comments of the Banks and Fannie Mae requesting conformance of the provisions of the Interim Final Rule with the provisions of FDIC and FCSIC regulations relating to golden parachutes. In publishing the Interim Final Rule, FHFA primarily sought comment on factors the Director would consider in acting on golden parachute payments. The comments received to the Interim Final Rule address other elements of a golden parachute regulation. For this reason, FHFA has determined that it will consider adding provisions similar to those of the FDIC golden parachute regulation in a subsequent rulemaking. The FDIC regulation describes more specifically benefits included or excluded from the term ‘‘golden parachute payment.’’ It should be noted that, consistent with the FDIC regulation, benefits provided under qualified and nonqualified deferred compensation plans are excluded from the term ‘‘golden parachute payment’’ under the Interim Final Rule and under this final regulation. rmajette on PRODPC74 with RULES Specific Comment For purposes of this regulation, FHFA considered a comment by Fannie Mae that addressed one of the factors to be taken into account by the Director when acting regarding golden parachutes, i.e., paragraph (f) of § 1231.5. The paragraph provides that in determining whether to prohibit or limit any golden parachute payment, among the factors, the Director shall consider— 4 12 CFR part 1412. VerDate Nov<24>2008 15:24 Jan 28, 2009 Jkt 217001 (f) Any other factor the Director determines relevant to the facts and circumstances surrounding the golden parachute payment, including but not limited to negligence, gross negligence, neglect, willful misconduct, breach of fiduciary duty, and malfeasance on the part of an entity-affiliated party. Fannie Mae requested that paragraph (f) of § 1231.5 be amended to mirror the ‘‘catchall’’ factor adopted by the FDIC and the FCSIC in their regulations, whereby the Director would consider: ‘‘Any other factors or circumstances which would indicate that the proposed payment would be contrary to the intent of section 1318(e) of the Act or this part.’’ In commenting on the requested amendment, Fannie Mae stated that there are substantial benefits to regulatory uniformity in terms of predictability and fairness, and there is no apparent difference in congressional intent or in the policy implications of golden parachute restrictions that would call for a different standard in the present context. By mirroring the ‘‘catchall’’ factor adopted by the FDIC and the FCSIC, Fannie Mae claimed focus would be on the intent of the statute, and would permit the Director to consider all appropriate factors in determining whether to deny or limit proposed golden parachute payments. After consideration of Fannie Mae’s comment, FHFA determined to amend paragraph (f) of § 1231.5 to follow more closely the statutory language in section 1318 of the Act that the Director may consider in the oversight of compensation of an executive officer. To that end, as relevant facts and circumstances for the Director to consider with respect to golden parachute payments, FHFA has deleted the following language: ‘‘but not limited to negligence, gross negligence, neglect’’ and has substituted in lieu thereof the following language: ‘‘any fraudulent act or omission, breach of fiduciary duty, violation of law, rule, regulation, order, or written agreement, and the level of’’. Regulatory Impacts Paperwork Reduction Act The Final Rule does not contain any information collection requirement that requires the approval of OMB under the Paperwork Reduction Act (44 U.S.C. 3501 et seq.). Regulatory Flexibility Act The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires that a regulation that has a significant economic impact on a substantial number of small entities, small businesses, or small organizations must include an initial regulatory flexibility analysis describing the regulation’s PO 00000 Frm 00002 Fmt 4700 Sfmt 4700 impact on small entities. Such an analysis need not be undertaken if the agency has certified that the regulation will not have a significant economic impact on a substantial number of small entities. 5 U.S.C. 605(b). FHFA has considered the impact of the Final Rule under the Regulatory Flexibility Act. FHFA certifies that the Final Rule is not likely to have a significant economic impact on a substantial number of small business entities because the regulation is applicable only to the regulated entities which are not small entities for the purposes of the Regulatory Flexibility Act. List of Subjects in 12 CFR Part 1231 Golden Parachutes, GovernmentSponsored Enterprises. Accordingly, the Interim Final Rule at part 1231 of Title 12 CFR Chapter XII, published at 73 FR 53356 on September 16, 2008, and corrected at 73 FR 54309 on September 19, 2008, and at 73 FR 54673 on September 23, 2008, is adopted as a final rule with the following changes: Subchapter B—Entity Regulations 1. The heading for subchapter B of Chapter XII is revised to read as set forth above. ■ 2. The title of part 1231 is revised to read as set forth below. ■ PART 1231—GOLDEN PARACHUTE PAYMENTS 3. The authority citation for part 1231 continues to read as follows: ■ Authority: 12 U.S.C. 4518(e). 4. Amend § 1231.5 by revising paragraph (f) to read as follows: ■ § 1231.5 Factors to be taken into account. * * * * * (f) Any other factor the Director determines relevant to the facts and circumstances surrounding the golden parachute payment, including any fraudulent act or omission, breach of fiduciary duty, violation of law, rule, regulation, order, or written agreement, and the level of willful misconduct, breach of fiduciary duty, and malfeasance on the part of an entityaffiliated party. Dated: January 15, 2009. James B. Lockhart III, Director, Federal Housing Finance Agency. [FR Doc. E9–1517 Filed 1–28–09; 8:45 am] BILLING CODE 8070–01–P E:\FR\FM\29JAR1.SGM 29JAR1

Agencies

[Federal Register Volume 74, Number 18 (Thursday, January 29, 2009)]
[Rules and Regulations]
[Pages 5101-5102]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-1517]



========================================================================
Rules and Regulations
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains regulatory documents 
having general applicability and legal effect, most of which are keyed 
to and codified in the Code of Federal Regulations, which is published 
under 50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by the Superintendent of Documents. 
Prices of new books are listed in the first FEDERAL REGISTER issue of each 
week.

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


Federal Register / Vol. 74, No. 18 / Thursday, January 29, 2009 / 
Rules and Regulations

[[Page 5101]]



FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1231

RIN 2590-AA08


Golden Parachute Payments

AGENCY: Federal Housing Finance Agency.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Federal Housing Finance Agency (FHFA) is issuing a final 
regulation that sets forth factors to be considered by the Director of 
FHFA in acting upon the Director's authority to limit golden parachute 
payments to entity-affiliated parties in connection with the Federal 
National Mortgage Association, the Federal Home Loan Mortgage 
Corporation, and the Federal Home Loan Banks.

DATES: Effective Date: January 29, 2009.

FOR FURTHER INFORMATION CONTACT: Alfred M. Pollard, General Counsel, 
(202) 414-3788 (not a toll-free number), Federal Housing Finance 
Agency, Fourth Floor, 1700 G Street, NW., Washington, DC 20552. The 
telephone number for the Telecommunications Device for the Deaf is 
(800) 877-8339.

SUPPLEMENTARY INFORMATION: 

I. Background

General Background

    The Housing and Economic Recovery Act of 2008 (HERA), Public Law 
110-289, 122 Stat. 2654, amended the Federal Housing Enterprises 
Financial Safety and Soundness Act of 1992 (12 U.S.C. 4501 et seq.) 
(Act) to establish FHFA as an independent agency of the Federal 
Government.\1\ FHFA was established to oversee the prudential 
operations of the Federal National Mortgage Association, the Federal 
Home Loan Mortgage Corporation (collectively, Enterprises), and the 
Federal Home Loan Banks (Banks) (collectively, regulated entities) and 
to ensure that they operate in a safe and sound manner including being 
capitalized adequately; foster liquid, efficient, competitive and 
resilient national housing finance markets; comply with the Act and 
rules, regulation, guidelines and orders issued under the Act, and the 
respective authorizing statutes of the regulated entities; and carry 
out their missions through activities authorized and consistent with 
the Act and their authorizing statutes; and, that the activities and 
operations of the regulated entities are consistent with the public 
interest.
---------------------------------------------------------------------------

    \1\ See Division A, titled the ``Federal Housing Finance 
Regulatory Reform Act of 2008,'' Title I, Section 1101 of HERA.
---------------------------------------------------------------------------

    The Office of Federal Housing Enterprise Oversight (OFHEO) and the 
Federal Housing Finance Board (FHFB) will be abolished one year after 
enactment of the HERA. However, the regulated entities continue to 
operate under regulations promulgated by OFHEO and FHFB until such 
regulations are superseded by regulations promulgated by the FHFA.

Background on Golden Parachute Payments

    Section 1114 of HERA amended 12 U.S.C. 4518 to provide additional 
authorities for FHFA in addressing certain compensation and benefits, 
specifically golden parachute payments and indemnification payments. 
HERA added a new paragraph (e) to section 4518 addressing regulation 
and prohibition of these benefits. While paragraphs (e)(1) and (e)(3)-
(6) are self executing, Congress provided that for paragraph (e)(2) 
addressing factors to be taken into account when acting regarding 
golden parachutes and indemnification, FHFA prescribe, by regulation, 
factors to be considered. The factors set forth in paragraph (e)(2) are 
explicit and provide guidance to the Director in taking an action under 
the statute.
    FHFA published an Interim Final Rule that was effective on 
September 16, 2008, the date of publication in the Federal Register. 
The rule, which was corrected on September 19 and September 23, 2008, 
addresses only golden parachute payments.\2\ During the public notice 
and comment period, which closed on October 31, 2008, FHFA requested 
comment on paragraph (2) of section 4518(e), i.e., factors to be taken 
into account by FHFA when acting regarding golden parachutes. The 
Interim Final Rule also provided that FHFA would consider other 
comments on other aspects of the regulation for future revision, if 
necessary or appropriate.
---------------------------------------------------------------------------

    \2\ 73 FR 53356 (September 16, 2008), with Correcting Amendments 
at 73 FR 54309 (September 19, 2008) and at 73 FR 54673 (September 
23, 2008), to be codified at 12 CFR 1231. The portion of the Interim 
Final Rule published on September 16, 2008, which relates to 
indemnification payments, is being promulgated by separate 
rulemaking that is subject to public comment. See Proposed Amendment 
for Golden Parachute and Indemnification Payments, 73 FR 67424 
(November 14, 2008).
---------------------------------------------------------------------------

II. Comment on the Interim Final Rule

General Comment

    FHFA received comments from individuals in the general public, nine 
Federal Home Loan Banks, and Fannie Mae. In general, the public 
commented that severance should not be paid to departing executives of 
the Enterprises, particularly the Chief Executive Officers. The 
consensus among these individuals was that any such payment would be 
excessive, irresponsible, and grossly unfair to taxpayers.
    The Banks commented that they shared widespread public concern over 
excessive golden parachute payments paid by failed or failing 
companies. The Banks noted that fulfillment of their housing and 
liquidity mission, consistent with safe and sound operation, demands a 
high caliber workforce, and that reasonable and customary separation 
benefits are an important and appropriate component of the Banks' 
retention, hiring, and workforce management efforts. To that end, the 
Banks requested that FHFA consider standards set forth in the Federal 
Deposit Insurance Corporation (FDIC) regulations on golden parachute 
payments, which were promulgated pursuant to the Federal Deposit 
Insurance Act (FDI Act), for guidance as FHFA considers changes to the 
Interim Final Rule.\3\ The Banks requested consideration of the FDIC 
regulations, as the legislative provisions on which they

[[Page 5102]]

are based are similar to the HERA and represent industry practice. For 
these reasons, many of the Banks' comments suggest specific aspects of 
the FDIC regulations that the Banks believe should be incorporated into 
the Final Rule.
---------------------------------------------------------------------------

    \3\ See 61 FR 5926 (February 15, 1996) and 12 CFR part 359.
---------------------------------------------------------------------------

    Similarly, Fannie Mae suggested that FHFA revise the Interim Final 
Rule to more closely follow the FDIC regulations, and also the Farm 
Credit System Insurance Corporation (FCSIC) regulations, which adopted 
the FDIC's approach.\4\ Fannie Mae commented that the FDIC and FCSIC 
regulations implement legislation similar to the HERA so conformance 
with regulations would foster uniformity in regulation, public 
perception of fairness, and competition on a level regulatory playing 
field for executive talent. Fannie Mae also stated such conformance 
would reduce administrative burden because of existing guidance and 
precedent.
---------------------------------------------------------------------------

    \4\ 12 CFR part 1412.
---------------------------------------------------------------------------

    FHFA gave careful consideration to the comments of the Banks and 
Fannie Mae requesting conformance of the provisions of the Interim 
Final Rule with the provisions of FDIC and FCSIC regulations relating 
to golden parachutes. In publishing the Interim Final Rule, FHFA 
primarily sought comment on factors the Director would consider in 
acting on golden parachute payments. The comments received to the 
Interim Final Rule address other elements of a golden parachute 
regulation. For this reason, FHFA has determined that it will consider 
adding provisions similar to those of the FDIC golden parachute 
regulation in a subsequent rulemaking. The FDIC regulation describes 
more specifically benefits included or excluded from the term ``golden 
parachute payment.'' It should be noted that, consistent with the FDIC 
regulation, benefits provided under qualified and nonqualified deferred 
compensation plans are excluded from the term ``golden parachute 
payment'' under the Interim Final Rule and under this final regulation.

Specific Comment

    For purposes of this regulation, FHFA considered a comment by 
Fannie Mae that addressed one of the factors to be taken into account 
by the Director when acting regarding golden parachutes, i.e., 
paragraph (f) of Sec.  1231.5. The paragraph provides that in 
determining whether to prohibit or limit any golden parachute payment, 
among the factors, the Director shall consider--

    (f) Any other factor the Director determines relevant to the 
facts and circumstances surrounding the golden parachute payment, 
including but not limited to negligence, gross negligence, neglect, 
willful misconduct, breach of fiduciary duty, and malfeasance on the 
part of an entity-affiliated party.

    Fannie Mae requested that paragraph (f) of Sec.  1231.5 be amended 
to mirror the ``catchall'' factor adopted by the FDIC and the FCSIC in 
their regulations, whereby the Director would consider: ``Any other 
factors or circumstances which would indicate that the proposed payment 
would be contrary to the intent of section 1318(e) of the Act or this 
part.'' In commenting on the requested amendment, Fannie Mae stated 
that there are substantial benefits to regulatory uniformity in terms 
of predictability and fairness, and there is no apparent difference in 
congressional intent or in the policy implications of golden parachute 
restrictions that would call for a different standard in the present 
context. By mirroring the ``catchall'' factor adopted by the FDIC and 
the FCSIC, Fannie Mae claimed focus would be on the intent of the 
statute, and would permit the Director to consider all appropriate 
factors in determining whether to deny or limit proposed golden 
parachute payments.
    After consideration of Fannie Mae's comment, FHFA determined to 
amend paragraph (f) of Sec.  1231.5 to follow more closely the 
statutory language in section 1318 of the Act that the Director may 
consider in the oversight of compensation of an executive officer. To 
that end, as relevant facts and circumstances for the Director to 
consider with respect to golden parachute payments, FHFA has deleted 
the following language: ``but not limited to negligence, gross 
negligence, neglect'' and has substituted in lieu thereof the following 
language: ``any fraudulent act or omission, breach of fiduciary duty, 
violation of law, rule, regulation, order, or written agreement, and 
the level of''.

Regulatory Impacts

Paperwork Reduction Act

    The Final Rule does not contain any information collection 
requirement that requires the approval of OMB under the Paperwork 
Reduction Act (44 U.S.C. 3501 et seq.).

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires that 
a regulation that has a significant economic impact on a substantial 
number of small entities, small businesses, or small organizations must 
include an initial regulatory flexibility analysis describing the 
regulation's impact on small entities. Such an analysis need not be 
undertaken if the agency has certified that the regulation will not 
have a significant economic impact on a substantial number of small 
entities. 5 U.S.C. 605(b). FHFA has considered the impact of the Final 
Rule under the Regulatory Flexibility Act. FHFA certifies that the 
Final Rule is not likely to have a significant economic impact on a 
substantial number of small business entities because the regulation is 
applicable only to the regulated entities which are not small entities 
for the purposes of the Regulatory Flexibility Act.

List of Subjects in 12 CFR Part 1231

    Golden Parachutes, Government-Sponsored Enterprises.

    Accordingly, the Interim Final Rule at part 1231 of Title 12 CFR 
Chapter XII, published at 73 FR 53356 on September 16, 2008, and 
corrected at 73 FR 54309 on September 19, 2008, and at 73 FR 54673 on 
September 23, 2008, is adopted as a final rule with the following 
changes:

Subchapter B--Entity Regulations

0
1. The heading for subchapter B of Chapter XII is revised to read as 
set forth above.
0
2. The title of part 1231 is revised to read as set forth below.

PART 1231--GOLDEN PARACHUTE PAYMENTS

0
3. The authority citation for part 1231 continues to read as follows:

    Authority: 12 U.S.C. 4518(e).

0
4. Amend Sec.  1231.5 by revising paragraph (f) to read as follows:


Sec.  1231.5  Factors to be taken into account.

* * * * *
    (f) Any other factor the Director determines relevant to the facts 
and circumstances surrounding the golden parachute payment, including 
any fraudulent act or omission, breach of fiduciary duty, violation of 
law, rule, regulation, order, or written agreement, and the level of 
willful misconduct, breach of fiduciary duty, and malfeasance on the 
part of an entity-affiliated party.

    Dated: January 15, 2009.
James B. Lockhart III,
Director, Federal Housing Finance Agency.
[FR Doc. E9-1517 Filed 1-28-09; 8:45 am]
BILLING CODE 8070-01-P