Title: PROPOSED RULE--Organization; General Provisions; Disclosure to Shareholders--12 CFR Parts 611, 618, and 620
Issue Date: 12/23/1993
Agency: FCA
Federal Register Cite: 58 FR 68069
___________________________________________________________________________
FARM CREDIT ADMINISTRATION

12 CFR Parts 611, 618, and 620

RIN 3052-AB42

Organization; General Provisions; Disclosure to Shareholders


ACTION: Proposed rule.

[*68069]

SUMMARY: The Farm Credit Administration (FCA), by the Farm Credit Administration Board (Board), issues a proposed rule that would amend the director compensation regulations to reflect changes to the Farm Credit Act of 1971 (Act) made by the Farm Credit Banks and Associations Safety and Soundness Act of 1992 (1992 Amendments) and to address concerns raised by Farm Credit Banks and FCA regarding the current annual report disclosure rules for director and senior officer compensation and reimbursable expenses. The proposed rule would include an annual adjustment procedure for the bank director compensation ceiling and would also establish an approval process for exceeding the statutory limitation. These changes are being proposed in order to comply with the requirements of the 1992 Amendments.

Also, the proposed rule would require written policies on reimbursement of travel, subsistence, and other related expenses for directors, officers, and employees of all Farm Credit institutions. In connection with this action, the proposed rule would eliminate the requirement for individual disclosure of reimbursable expenses paid to bank directors and require that the aggregate of expenses reimbursed to the boards of directors of each Farm Credit institution be disclosed. By proposing these changes, the FCA Board desires to reduce the burden that may inadvertently be imposed on some banks that would have to provide extensive additional disclosures to fully explain necessary and reasonable expenses reimbursed to individual directors.

Finally, the proposed rule would amend the requirements for disclosure of senior officer compensation in accordance with section 514 of the 1992 Amendments. The FCA Board believes that adopting more detailed disclosure requirements, such as those imposed on commercial banks, for senior officers of Farm Credit institutions, would accomplish the objectives set forth in section 514.

DATES: Written comments must be received on or before January 24, 1994. [*68070]

ADDRESSES: Comments may be mailed or delivered (in triplicate) to Patricia W. DiMuzio, Division Director, Regulation Development Division, Office of Examination, 1501 Farm Credit Drive, McLean, VA 22102-5090. Copies of all communications received will be available for examination by interested parties in the Regulation Development Division, Farm Credit Administration.

FOR FURTHER INFORMATION CONTACT:

Laurie A. Rea, Policy Analyst, Regulation Development Division, Office of Examination, Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4498, TDD (703) 883-4444,

or

Joy E. Strickland, Senior Attorney, Regulatory Operations Division, Office of General Counsel, Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TDD (703) 883-4444.

SUPPLEMENTARY INFORMATION:

I. Overview

The Farm Credit Administration's (FCA) need to comply with the Farm Credit Banks and Associations Safety and Soundness Act of 1992 (1992 Amendments) and other issues raised by Farm Credit Banks and identified by FCA concerning existing director and senior officer compensation and disclosure regulations prompted the FCA to initiate a project to amend its regulatory guidance in this area. The 1992 Amendments raised the maximum limit on compensation for bank directors to $ 20,000 per year, adjusted annually to reflect changes in the Consumer Price Index (CPI) for all urban consumers published by the Bureau of Labor Statistics. The 1992 Amendments also provided FCA with the authority to waive the limitation under exceptional circumstances, as determined in accordance with regulations promulgated by the FCA.

When 611.400 was previously amended (57 FR 43393, September 21, 1992), The Farm Credit Council (FCC) commented on behalf of its membership and objected to disclosure of reimbursable expenses. The FCC commented that no other Federal bank regulatory agency currently requires public disclosure of the amount of expense reimbursements received by directors. Two banks endorsed the FCC's comments but did not provide any additional suggestions. These were the only comments received on the amendments during the public comment period. The FCA Board determined that disclosure of reimbursable expenses was important because these expenses are often a significant component of overall director costs and can, in some cases, exceed compensation. Further, the FCA Board determined that stockholders of banks should be afforded the opportunity to review reimbursable expenses in order to guard against excessive expenditures by directors. The disclosure requirement is consistent with the stockholders' common-law right to inspect the corporation's books and with congressional concern over the impact of director costs on the borrower.

Subsequent to the publication of the final amendment to 611.400, two banks requested that FCA rescind the requirement to disclose the reimbursable expenses paid to each bank director. One bank stated that the disclosure requirement results in an inequitable treatment due to the widespread geographic locations of its directors relative to the bank's headquarters location. The bank explained that it may be necessary for directors who live greater distances from the bank headquarters or directors who serve on national committees to incur greater travel expenses. Thus, an inequitable implication may result from the individual disclosure because stockholders would not have a full understanding of the reasons why some directors have legitimately higher reimbursable expenses. The bank suggested in its letter that FCA amend the regulation to require disclosure of the aggregate reimbursable expenses paid to the directors as a group, rather than individually. Another bank requested that FCA reconsider the requirements of 611.400 because of the variation in expenses due to the geographic location of directors, committee assignments, and other circumstances. The bank also reiterated comments made on the proposed amendments to 611.400 and stated that the requirements for disclosure of expenses exceed the disclosure requirements placed on other financial institutions. Thus, the bank requested that FCA eliminate the expense disclosure requirement entirely. As a result of the changes made by the 1992 Amendments and the concerns raised after publication of the final amendments, the FCA Board has reevaluated the issue of disclosure of reimbursable expenses.

In addition, the FCA Board has reconsidered the issue of senior officer compensation. In section 514 of the 1992 Amendments, Congress determined that disclosure of compensation paid to directors and senior officers of Farm Credit institutions provides stockholders with information necessary to better manage their institutions. Congress directed the FCA to ensure that the information reported by Farm Credit institutions provides stockholders with sufficient information to assist them in making informed decisions regarding the operation of their institutions. The FCA Board believes that adopting more detailed disclosure requirements, such as those imposed on commercial banks, for senior officers of Farm Credit institutions would accomplish Congress' objectives. The proposed regulation would require institutions to disclose the individual compensation of the five highest paid senior officers, the total compensation paid to all officers as a group, and a description of the compensation plans of the aforementioned individuals. These disclosures would provide shareholders, investors, Congress, and the public with the necessary information to assist them in evaluating whether senior officer compensation plans approved by the Farm Credit institution boards are reasonable and appropriate in view of the financial condition and performance of the institution. Additionally, the FCA Board believes that disclosure of individual senior officer compensation, along with an explanation of the compensation program, would aid readers of the annual report in understanding the impact of individual senior officer compensation on operating expenses as well as any significant compensation fluctuations. Further, the proposed regulation would provide shareholders, investors, Congress, and the public with uniform information concerning the compensation of Farm Credit institution senior officers similar to that published by other Government-sponsored enterprises.

II. Section-by-Section Analysis

A. Section 611.400-Compensation of Bank Board Members

The bank director compensation regulation that became effective on January 29, 1993, addressed the maximum level of compensation that can be paid to bank directors and modified the disclosure requirements. Existing 611.400 eliminated the $ 200 per day maximum that existed in the previous regulation and raised the director compensation ceiling to "limits established by the Farm Credit Act of 1971, as amended." The 1992 Amendments replaced the $ 15,000 per year cap with a new limitation of $ 20,000 per year, annually adjusted to reflect changes in the Consumer Price Index (CPI) for all urban consumers published by the Bureau of Labor Statistics. [*68071]

In response to the 1992 Amendments, the FCA Board issued a bookletter entitled "Annual Adjustment Procedure for the Maximum Amount of Director Compensation" (August 11, 1993), which discusses the methodology for adjusting the $ 20,000 per year limitation on director compensation to reflect changes in the CPI. Proposed 611.400 would incorporate this methodology. FCA studied several approaches for determining an annual adjustment procedure and sought a method that would be a fair representation of the actual change in the cost of living over an entire year and that would be easily understood and applied. Proposed 611.400(b) would require that the current year's maximum bank director compensation be determined by adjusting the prior year's maximum compensation level by the prior year's annual average percentage change in the CPI for all urban consumers. For example, the 1994 statutory maximum bank director compensation can be determined as follows: 1994 Maximum Compensation=1993 Maximum Compensation multiplied by (the Annual Average 1993 CPI divided by the Annual Average 1992 CPI). For more information, the annual average CPIs for all urban consumers can be found in publications by the United States Department of Labor, Bureau of Labor Statistics, Division of Consumer Prices and Price Indexes, and in the Economic Indicators, published by the United States Government Printing Office, as well as in several other publications.

Proposed 611.400(c) would address FCA's statutory authority to establish regulations to waive the limitation on bank director compensation set by section 4.21 of the Act. Prior to developing the proposed rule, FCA identified certain exceptional circumstances in which it might be appropriate to consider granting a waiver of the statutory limitation, such as merger or significant special assignments to an individual or board committee. FCA also considered whether the statutory limit would need to be frequently waived due to the changing structure of the System. The FCA Board believes that circumstances may arise when a waiver of the statutory limitation, within reason, is justified. Nevertheless, the FCA Board believes that the need to waive the statutory limitation on bank director compensation should be rare, as the periodic adjustment procedure was instituted to ensure that the limitation on bank director compensation remains fair and reasonable. The FCA Board also believes that the responsibility to justify the need to exceed the ceiling should be left with the bank.

The FCA Board believes that the decision as to whether a waiver of the statutory bank director compensation limitation is warranted should be made on a case-by-case basis. The circumstances that may necessitate a waiver of the ceiling are intended by statute to be "exceptional." Developing a regulation that captures all exceptional instances that may truly warrant a waiver of the statutory maximum is not practicable. There may be circumstances in which it would be appropriate to exceed the compensation ceiling that may be overlooked in such a regulation. Furthermore, circumstances identified in the regulation that would ordinarily warrant the ceiling to be exceeded may not always, due to the particular circumstances, justify an exception to the ceiling.

The proposed regulation would require a bank to provide the FCA Chairman with a written request for approval to exceed the statutory limitation before disbursing any funds. The request must include an explanation of the exceptional circumstance(s) that the bank believes necessitates a waiver, and justification of the amount each bank director would receive based on the extraordinary amount of time and service devoted to the bank's business. Further, under the proposed regulation, the FCA would not grant a waiver that allows a bank to pay any director in excess of 25 percent more than the statutory maximum compensation as adjusted by the CPI. Congress set a maximum limit on bank director compensation to ensure that borrowers/stockholders are not burdened with excessive director costs. The FCA believes that the authority to waive the compensation ceiling in exceptional circumstances was not intended by Congress to be a means to grant unlimited director compensation. Nevertheless, the FCA believes that a reasonable level of additional compensation beyond the statutory limitation should be provided in recognition of the heavy burdens placed on directors as a result of exceptional circumstances. The FCA would respond to any such request within 30 days of receipt of all the information required by the regulation and any additional information that may be requested by the FCA.

Finally, the proposed regulation would remove the provisions for payment of reimbursable expenses from 611.400 and place those requirements in the proposed amendment to 618.8270, Travel, subsistence, and other related expenses, which are covered under part 618-General Provisions, and are applicable to all Farm Credit institutions.

B. Section 618.8270-Travel, Subsistence, and Other Related Expenses

Existing 611.400 requires that the amount of reimbursement to each director for travel, subsistence, and other related expenses must be disclosed separately from the amount of compensation received. The objective of the rule was to ensure full disclosure of director compensation and expenses and promote director accountability to shareholders. The regulation was not intended to be burdensome or prejudicial against directors who travel greater distances to board meetings; rather, the intent was to capture reimbursable expenses that represent a significant portion of overall director costs. Therefore, in order to reduce the perceived inequities and maintain an effective oversight mechanism for monitoring variations in director expenses, the proposed regulation would strengthen the regulatory framework regarding policy formulation and remove the requirement for individual disclosure of bank director reimbursable expenses.

Existing 618.8270 requires institutions to establish a travel policy, but does not contain detailed guidance as to what those policies must cover. Therefore, proposed 618.8270 would combine and strengthen the requirements of the existing 611.400 and 618.8270, and provide one regulation that governs the travel and other reimbursable expenses for directors, officers, and employees of all institutions. Proposed 618.8270 would require each Farm Credit institution to establish written policies regarding travel, subsistence, and other related expenses. Additionally, the proposed rule would require all Farm Credit institutions to develop guidelines and set specific limitations that ensure expenses being reimbursed to directors, officers, and employees are necessary and appropriate for conducting official duties.

The proposed rule would require the institution's policies to address the following areas: (1) Authorized purposes for which reimbursement of travel, subsistence, and other related expenses may be made; (2) guidelines and limitations on reimbursement for such items as modes of transportation, mileage rates for use of personal vehicles, per diem allowances, including maximums or limitations on lodging, meals, and incidental expenses, [*68072] and telephone calls, and any other miscellaneous expenses; (3) circumstances, if any, under which reimbursement of expenses of spouses or others may be made in connection with institution activities or functions; and (4) reimbursement procedures, including required documentation for reimbursement and the timing and frequency for adjusting any rates or limitations set on the reimbursement of expenses.

Additionally, the regulatory requirements would be strengthened by requiring institutions to have their internal auditors review the records maintained in accordance with 618.8270 to determine if the policies are being consistently followed by all individuals. The proposed rule would require the compliance review to be conducted at least annually, with the results reported to the institution's board audit committee or full board, if the board does not have an audit committee.

C. Section 620.5(i)-Compensation of Directors and Senior Officers

1. Director Compensation

The disclosure requirements in the proposed regulation remain largely unchanged from the existing regulation. The proposed regulation would add a requirement that if any of the bank's directors are granted a waiver of the maximum bank director compensation level set by section 4.21 of the Act, the exceptional circumstances allowing the waiver must be disclosed.

2. Senior Officer Compensation

Existing 620.5(i)(2) requires an institution to disclose the aggregate amount of compensation paid during the last fiscal year to all senior officers as a group, stating the number of persons in the group without naming them. At a minimum, the aggregate amount must include the five highest paid officers, whether or not designated as a senior officer by the institution's board. In addition, a statement is required that the total compensation during the last fiscal year paid to any officer included in the aggregate amount that exceeds $ 50,000 is available to shareholders upon request. The FCA Board continues to believe that this type of information is necessary to make informed decisions regarding an institution and that it should be disclosed and made available to shareholders. However, for the reasons previously stated, the FCA Board believes that disclosure of senior officer compensation in the aggregate does not provide shareholders with sufficient information to determine whether compensation is reasonable.

Therefore, the proposed regulation would require institutions to disclose the individual compensation of the five highest paid senior officers, the total compensation paid to all officers as a group, and a description of the compensation plans of the aforementioned individuals. While the differences in the number of senior and other officers between small and large institutions varies, the FCA Board believes that uniform disclosures between institutions, regardless of size, are important for comparison purposes. Disclosing the individual compensation of the five highest paid senior officers, as well as all officers as a group, would provide stockholders with a more complete portrayal of the costs of the institution's management. These disclosures would be comparable to the disclosure requirements placed on senior officers of commercial banks. For example, the Federal Deposit Insurance Corporation requires compensation disclosures on an individual and a group basis (12 CFR 335.212), as well as a discussion of any compensation program and compensation plans.

Specifically, the proposed regulation would require Farm Credit institutions to disclose the total amount of compensation paid and the amount of each component of compensation paid to each of the five highest compensated senior officers, naming each individual and his/her position or title. At a minimum, disclosure is required for the five highest compensated officers, whether or not designated as a senior officer by the board. Each Farm Credit institution would also be required to disclose the aggregate amount of compensation paid and the components of compensation paid to all officers as a group, stating the number of officers in the group without naming them. Finally, the disclosure would include a description of all plans pursuant to which cash or noncash compensation was paid or distributed during the last fiscal year, or is proposed to be paid or distributed in the future for performance during the last fiscal year to the aforementioned individuals. The proposed regulation would define compensation as annual salary, cash bonuses, deferred compensation, vested pension benefits (unless the plan is made available to all employees on the same basis), and any other noncash compensation.

The current disclosure of aggregate compensation, by itself, does not fully explain the reason for individual senior officer compensation levels and large fluctuations in total compensation. Large fluctuations can result, in part, from incentive payments made to senior officers based on the institution's performance, and these incentive programs are not fully explained through the existing disclosure requirements. The more descriptive disclosures in the proposed rule are intended to provide stockholders with adequate information to hold the institution's board of directors accountable for justifying the reasonableness of compensation levels paid to its senior officers. Additionally, these proposed disclosure requirements are intended to achieve Congress' objective of providing Farm Credit institution stockholders with sufficient meaningful information to make informed decisions regarding their institutions.

3. Travel, Subsistence, and Other Related Expenses

The FCA Board has reconsidered the disclosure requirements regarding reimbursable expenses for the reasons previously explained. The FCA Board, however, maintains its original intention of providing shareholders with a mechanism to identify and respond to unreasonable expenses and variances in expenses reimbursed to directors. The current requirement for individual bank director disclosure of reimbursable expenses may be unduly burdensome for some banks in light of the additional disclosures that may be needed to provide a meaningful and accurate portrayal of expenses being reimbursed to each individual bank director. Because reimbursable expenses continue to be a significant portion of director costs and, in some cases, can exceed compensation, some type of disclosure of expenses is still warranted. The FCA Board continues to believe that disclosure provides shareholders with information to make informed decisions about the directors they elect and about the institution's operations. In addition, the existing disclosure regulation for reimbursable expenses only applies to bank directors. The FCA Board believes that all Farm Credit institution directors and senior officers are an integral part of the System's management and should, in most instances, be placed under the same scrutiny.

Proposed 618.8270 would require that the policy adopted by each Farm Credit institution, as it applies to directors and senior officers, be discussed in the annual report. The FCA Board is proposing this requirement in order to provide shareholders with information that would assist them in determining whether the expenses being reimbursed to the management of their [*68073] institution are reasonable. The proposed regulation would also require Farm Credit institutions to provide shareholders with information as to where they could receive a copy of the policy. Although shareholders/borrowers may be hesitant to request information about a particular director or senior officer, they may be less hesitant to request a general policy.

Proposed 620.5(i)(3) would require disclosure of the aggregate amount reimbursed to each Farm Credit institution board of directors, rather than individual bank directors, for travel, subsistence, and other related expenses. Additionally, the proposed regulation would provide shareholders information on developing trends by requiring a 3-year history of aggregate expenses reimbursed to the board of directors.

The FCA Board believes that disclosure of the 3-year trend of the aggregate expenses reimbursed to boards of directors and a discussion of the institution's travel policy should provide shareholders with information to assist them in evaluating the reasonableness of management expenses. These disclosures are intended, in part, to provide shareholders with additional insight into the efficiency of the institution's operations. Further, because directors are accountable to the shareholders as their representatives in a Farm Credit institution, the shareholders are in the best position to assess and govern the use of the institution's funds.

Proposed 618.8270 would require Farm Credit institution boards to adopt policies governing travel, subsistence, and other related expenses for all employees as well as directors and senior officers. However, it should be noted that the disclosure requirements would only relate to the directors and senior officers of the institutions. The FCA Board believes that monitoring the expenses reimbursed to employees is the responsibility of management.

List of Subjects

12 CFR Part 611

Agriculture, Banks, banking, Rural areas.

12 CFR Part 618

Agriculture, Archives and records, Banks, banking, Insurance, Reporting and recordkeeping requirements, Rural areas, Technical assistance.

12 CFR Part 620

Accounting, Agriculture, Banks, banking, Reporting and recordkeeping requirements, Rural areas.

For the reasons stated in the preamble, parts 611, 618, and 620 of chapter VI, title 12 of the Code of Federal Regulations are proposed to be amended to read as follows:

PART 611-ORGANIZATION

1. The authority citation for part 611 continues to read as follows:

Authority: Secs. 1.3, 1.13, 2.0, 2.10, 3.0, 3.21, 4.12, 4.15, 5.9, 5.10, 5.17, 7.0-7.13, 8.5(e) of the Farm Credit Act; 12 U.S.C. 2011, 2021, 2071, 2091, 2121, 2142, 2183, 2203, 2243, 2244, 2252, 2279a-2279f-1, 2279aa-5(e); secs. 411 and 412 of Pub. L. 100-233, 101 Stat. 1568, 1638; secs. 409 and 414 of Pub. L. 100-399, 102 Stat. 989, 1003 and 1004.

Subpart D-Rules for Compensation of Board Members

2. Section 611.400 is revised to read as follows:

611.400 -- Compensation of bank board members.

(a) Farm Credit System banks are authorized to pay fair and reasonable compensation to directors for services performed in an official capacity at a rate not to exceed the level established in section 4.21 of the Farm Credit Act of 1971, as amended, unless the FCA determines that such level adversely affects the safety and soundness of the institution.

(b) The bank director compensation level established in section 4.21 of the Act shall be adjusted to reflect changes in the Consumer Price Index (CPI) for all urban consumers, as published by the Bureau of Labor Statistics, in the following manner: Current year's maximum compensation=Prior year's maximum compensation adjusted by the prior year's annual average percent change in the CPI for all urban consumers.

(c) A waiver of the compensation limitation prescribed by section 4.21 of the Act may be granted under exceptional circumstances as approved on a case-by-case basis by the FCA. The request for a waiver approval shall precede any payments by the bank to its director(s) that exceed the maximum limitation determined in paragraph (b) of this section. A bank seeking a waiver shall provide the FCA Chairman with a written request that:

(1) Describes and explains the exceptional circumstance(s) that the bank believes necessitates a waiver of section 4.21 of the Act;

(2) States the amount and the terms and conditions (if any) of the proposed compensation level for each director that would exceed the statutory maximum determined in paragraph (b) of this section; and

(3) Justifies the compensation level of each director that would exceed the statutory limitation based on the extraordinary time and service they devoted to bank business. The FCA shall not grant a waiver that allows a bank to pay any director in excess of 25 percent more than the statutory maximum compensation as determined in paragraph (b) of this section.

The FCA shall respond to written requests within 30 days of receipt of the preceding information and any other information requested by the FCA.

(d) Each bank board shall adopt a written policy regarding compensation of bank directors. The policy shall address, at a minimum, the following areas:

(1) The activities or functions for which attendance is necessary and appropriate and may be compensated, except that a Farm Credit System bank shall not compensate any director for rendering services on behalf of any other Farm Credit System institution or a cooperative of which the director is a member, or for performing other assignments of a nonofficial nature;

(2) The methodology for determining each director's rate of compensation; and

(3) The exceptional circumstances under which the board would seek a waiver of the statutory limitation on bank director compensation for any of its directors and any limitations or conditions the board wishes to place on the availability of such waivers.

(e) Directors may also be reimbursed for reasonable travel, subsistence, and other related expenses in accordance with the requirements of 618.8270 of this chapter.

PART 618-GENERAL PROVISIONS

3. The authority citation for part 618 continues to read as follows:

Authority: Secs. 1.5, 1.11, 1.12, 2.2, 2.4, 2.5, 2.12, 3.1, 3.7, 4.12, 4.13A, 4.25, 4.29, 5.9, 5.10, 5.17 of the Farm Credit Act; 12 U.S.C. 2013, 2019, 2020, 2073, 2075, 2076, 2093, 2122, 2128, 2183, 2200, 2211, 2218, 2243, 2244, 2252.

Subpart F-Miscellaneous Provisions

4. Section 618.8270 is revised to read as follows:

618.8270 -- Travel, subsistence, and other related expenses.

(a) Each Farm Credit institution board shall develop written policies regarding the reimbursement of travel, subsistence, and other related expenses to its directors, officers, and employees. [*68074] The policies shall address the following areas:

(1) Authorized purposes for which reimbursement of travel, subsistence, and other related expenses may be made;

(2) Guidelines and limitations on reimbursement for such items as:

(i) Modes of transportation;

(ii) Mileage rates for use of personal vehicles;

(iii) Per diem allowances, including maximums or limitations on lodging, meals, and incidental expenses; and

(iv) Telephone calls and any other miscellaneous expenses.

(3) Circumstances, if any, under which reimbursement of expenses of spouses or others may be made in connection with institution activities or functions; and

(4) Reimbursement procedures, including required documentation for reimbursement and the timing and frequency for adjusting any rates or limitations set on the reimbursement of expenses. Required documentation shall include:

(i) The activity or function for which the director, officer, or employee is being compensated;

(ii) The reason the attendance of the director, officer, or employee (or other individual) is necessary and appropriate;

(iii) The duration of the stay and the location of such activity or function; and

(iv) An itemized explanation of the expenses claimed.

(b) Each board shall ensure that the written records that are maintained to document the expenses paid to directors, officers, and employees by the institution are in accordance with the policies adopted by the board as required in paragraph (a) of this section. The records shall be in such detail to enable the personnel authorized to process reimbursements to verify that the amounts being reimbursed are within the policy guidelines set by the board.

(c) Each board shall require a review by the institution's internal auditors of the records maintained pursuant to paragraph (b) of this section to determine if the policies are being consistently followed. This review shall be conducted at least annually, with the results reported to the board audit committee or full board, if the board does not have an audit committee.

PART 620-DISCLOSURE TO SHAREHOLDERS

5. The authority citation for part 620 continues to read as follows:

Authority: Secs. 5.17, 5.19, 8.11 of the Farm Credit Act; 12 U.S.C. 2252, 2254, 2279aa-11; sec. 424 of Pub. L. 100-233, 101 Stat. 1568, 1656.

6. Section 620.5 is amended by revising paragraph (i) to read as follows:

620.5 -- Contents of the annual report to shareholders.

* * * * *

(i) Compensation of directors and senior officers. (1) Director compensation. Describe the arrangements under which directors of the institution are compensated for all services as a director (including total cash compensation and any noncash compensation that exceeds 10 percent of total compensation) and state the total cash compensation paid to all directors as a group during the last fiscal year. If applicable, describe any exceptional circumstances under which a waiver of section 4.21 of the Act was granted by the FCA. For each director, state:

(i) The number of days served at board meetings;

(ii) The total number of days served in other official activities;

(iii) The total compensation paid to each director during the last fiscal year.

(2) Senior officer compensation. For the purposes of this paragraph, compensation shall include annual salary, cash bonuses, deferred compensation, vested pension benefits (unless the plan is made available to all employees on the same basis), and any other noncash compensation that exceeds 10 percent of total compensation or $ 25,000, whichever is less. The report shall disclose:

(i) The total amount of compensation paid and the amount of each component of compensation paid to the five highest compensated senior officers or the five highest compensated officers, whether or not designated as a senior officer by the board, naming each individual and his/her position or title.

(ii) The aggregate amount of compensation paid and the components of compensation paid to all officers as a group, stating the number of officers in the group without naming them; and

(iii) A description of all plans pursuant to which cash or noncash compensation was paid or distributed during the last fiscal year, or is proposed to be paid or distributed in the future for performance during the last fiscal year, to those individuals described in paragraphs (i)(2)(i) and (i)(2)(ii) of this section. The description of each plan must include, but not be limited to:

(A) A summary of how the plan operates and who is covered by the plan;

(B) The criteria used to determine amounts payable, including any performance formula or measure;

(C) The time periods over which the measurement of compensation will be determined;

(D) Payment schedules;

(E) Any material amendments to the plan during the last fiscal year;

(F) Amounts paid or distributed pursuant to the plan to the named individuals and the group during the last fiscal year, less any amount relating to the same plan that previously has been disclosed as accrued; and

(G) Amounts accrued pursuant to the plan for the accounts of the named individuals and the group during the last fiscal year, the distribution or unconditional vesting of which is not subject to future events.

(iv) The annual report shall include a statement that disclosure of the total compensation paid during the last fiscal year to any senior officer or to any other officer included in the aggregate whose compensation exceeds $ 50,000 is available to shareholders upon request.

(3) Travel, subsistence, and other related expenses.

(i) Briefly describe the policy adopted pursuant to 618.8270 of this chapter addressing reimbursements for travel, subsistence, and other related expenses as it applies to directors and senior officers. The report shall include a statement that the policy is available to shareholders upon request.

(ii) For each of the last 3 fiscal years, state the aggregate amount of reimbursement for travel, subsistence, and other related expenses for all directors as a group.

* * * * *

Dated: December 16, 1993.

Curtis M. Anderson,

Secretary, Farm Credit Administration Board.

[FR Doc. 93-31282 Filed 12-22-93; 8:45 am]

BILLING CODE 6705-01-P