Title: PROPOSED RULE--Organization; Disclosure to Shareholders; FCS Board Compensation Limits--12 CFR Parts 611 and 620
Issue Date: 09/15/1998
Federal Register Cite: 63 FR 49305
FARM CREDIT ADMINISTRATION
12 CFR Parts 611 and 620
Organization; Disclosure to Shareholders; FCS Board Compensation Limits
ACTION: Proposed rule.
SUMMARY: The Farm Credit Administration (FCA or Agency), through the FCA Board (Board), proposes to amend its regulation on Farm Credit System (System or FCS) bank director compensation. The proposed amendment would authorize FCS banks to pay their directors more than the statutory maximum when justified by exceptional circumstances and remove the existing requirement that such payments receive FCA's prior approval.
DATES: Written comments must be received on or before October 15, 1998.
ADDRESSES: Comments may be mailed or delivered to Patricia W. DiMuzio, Director, Regulation and Policy Division, Office of Policy and Analysis, 1501 Farm Credit Drive, McLean, VA, [*49306] 22102-5090 or sent by facsimile transmission to (703) 734-5784. Comments may also be submitted via electronic mail to "firstname.lastname@example.org" or through the Pending Regulations section of the FCA's interactive website at "www.fca.gov." Copies of all communications received will be available for review by interested parties in the Office of Policy and Analysis, Farm Credit Administration.
FOR FURTHER INFORMATION CONTACT:
Alan Markowitz, Senior Policy Analyst, Office of Policy and Analysis, Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4479;
William L. Larsen, Senior Attorney, Office of General Counsel, Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TDD (703) 883-4083.
Prior to August 1988, the Farm Credit Act of 1971, as amended (Act), authorized the FCA to set the maximum level of FCS bank director compensation. At that time, § 611.1020 limited bank director compensation to $ 200 per day, plus reasonable allowances for travel, subsistence, and other related expenses. n1 With the passage of the Agricultural Credit Technical Corrections Act of 1988 (1988 Act), n2 Congress modified FCA's regulatory authority over FCS bank director compensation and established a $ 15,000 annual limit on bank director compensation. n3 The FCA published a final rule to reflect the statutory changes. n4 The new rule removed the $ 200 per day limit and, in its place, authorized FCS banks to pay fair and reasonable director compensation that did not exceed the statutory limit.
n1 See 52 FR 36012 (September 25, 1987).
n2 Pub. L. 100-399, 102 Stat. 989 (1988).
n3 See section 414 of the 1988 Act, which added section 4.21 of the 1971 Act.
n4 See 57 FR 43393 (September 21, 1992).
The Farm Credit Banks and Associations Safety and Soundness Act of 1992 n5 (1992 Act) amended section 4.21 of the Act to raise the limit on bank director compensation from $ 15,000 to $ 20,000 per year and authorized subsequent annual adjustments to reflect changes in the Consumer Price Index (CPI). The 1992 Act also authorized the FCA to waive the director compensation limitation under "exceptional circumstances" in accordance with regulations promulgated by the FCA. In response to these statutory changes, the Agency amended § 611.400 to incorporate the new FCS bank director compensation limits. n6
n5 Pub. L. 102-552, 106 Stat. 4102 (1992).
n6 See 59 FR 37406 (July 22, 1994).
Current § 611.400 provides a process for annually adjusting bank director compensation in response to changes in the CPI and for granting waivers when exceptional circumstances necessitate exceeding the statutory maximum. The rule limits the amount of additional director compensation available by waiver to 30 percent of the statutory maximum. The rule also requires that the Agency approve a waiver before the additional compensation is paid. Section 611.400(c) requires a bank to submit a written request to the FCA to waive the limitation. The written request must: (1) Describe and explain the exceptional circumstances that the bank believes necessitate a waiver; (2) state the amount and the terms and conditions of the proposed compensation level for each director whose compensation would exceed the statutory maximum; and (3) justify the proposed level of compensation based on the extraordinary time and service the director devotes to bank business.
The FCA, based on its experience in administering the waiver provisions of § 611.400, proposes to remove the existing prior approval requirements for additional director compensation of up to 30 percent of the statutory maximum when justified by exceptional circumstances. This proposed amendment is part of the Agency's continuing effort to streamline its regulations and reduce regulatory burden.
Since amending § 611.400 in 1994, the FCA Board has approved several bank requests under the regulatory waiver mechanism to exceed the statutory maximum for bank director compensation. Most of the waivers were based on exceptional circumstances related to development and implementation of mergers, consolidations, and joint management proposals. These activities are typically outside the normal course of business for FCS bank directors and require them to devote exceptional time and attention to bank affairs. The FCA has also approved waiver requests justified by extraordinary director efforts in connection with joint strategic planning projects between banks and the hiring of a new chief executive officer. Significantly, in the 4 years since the FCA amended § 611.400, the Agency has not found it necessary to deny a request for extraordinary director compensation.
Current § 611.400(d) requires each bank board of directors to adopt a written policy regarding the compensation of bank directors. Section 611.400(d)(3) requires this policy to address the exceptional circumstances under which the board would seek a waiver of the statutory maximum and any limitations or conditions the board would wish to place on the availability of such a waiver. Under the proposed rule, the requirement for a written policy would be retained. However, since the FCA would no longer approve in advance the payment of additional director compensation, the Agency would expect each bank to review its director compensation policy to be certain it reflects the added responsibility of the bank to ensure that such compensation occurs only in exceptional circumstances.
III. Proposed Changes
Based on the considerations discussed above, the FCA proposes to amend § 611.400(c) to eliminate the current prior approval requirement for waiver of the director compensation limitation. The proposal would authorize banks to pay directors up to 30 percent above the statutory maximum without notifying the FCA in advance. However, banks that grant additional compensation above the statutory maximum must maintain documentation justifying the additional director compensation, including the amount, and terms and conditions of the compensation, as well as a description of the extraordinary time and service the director devoted to bank business. Documentation will be subject to review and evaluation during the examination process.
The FCA believes that elimination of Agency prior approval in this area strikes an appropriate balance between Congressional intent that additional compensation be granted for truly exceptional circumstances and the goal of reducing regulatory burden. The FCA's experience to date with bank applications to grant additional director compensation has led the Agency to conclude that prior approval is unnecessary and that the use of the new procedure can be adequately monitored through the examination process.
The FCA also proposes conforming changes to §§ 611.400(d)(3) and 620.5(i)(1) to remove references to waivers granted by the FCA for providing additional compensation. As noted above, § 611.400(d)(3) would continue to require banks to maintain a written policy addressing exceptional circumstances justifying additional [*49307] director compensation. The conforming changes to § 620.5(i)(1) would continue to require annual report disclosure of director compensation. Should a director receive additional compensation in excess of the statutory maximum, the annual report must describe the exceptional circumstances justifying the additional compensation.
List of Subjects
12 CFR Part 611
Agriculture, Banks, banking, Rural areas.
12 CFR Part 620
Accounting, Agriculture, Banks, banking, Reporting and recordkeeping requirements, Rural areas.
For the reasons stated in the preamble, parts 611 and 620 of chapter VI, title 12 of the Code of Federal Regulations are proposed to be amended to read as follows:
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, 4.21, 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, 2209, 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 amended by revising paragraphs (c) and (d)(3) to read as follows:
§ 611.400 -- Compensation of bank board members.
* * * * *
(c)(1) A Farm Credit bank is authorized to pay a director up to 30 percent more than the statutory compensation limit in exceptional circumstances where the director contributes extraordinary time and effort in the service of the bank and its shareholders.
(2) Banks must document the exceptional circumstances justifying additional director compensation. The documentation must describe:
(i) The exceptional circumstances justifying the additional director compensation, including the extraordinary time and effort the director devoted to bank business; and (ii) The amount and the terms and conditions of the additional director compensation.
(d) * * *
(3) The exceptional circumstances under which the board would pay additional compensation for any of its directors as authorized by paragraph (c) of this section.
* * * * *
PART 620--DISCLOSURE TO SHAREHOLDERS
3. 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.
Subpart B--Annual Report to Shareholders
§ 620.5 -- [Amended]
4. Section 620.5(i)(1) is amended by removing the words "under which a waiver of section 4.21 of the Act was granted by the FCA" and adding in their place the words "justifying the additional director compensation as authorized by § 611.400(c)(1)" in the second sentence.
Dated: September 9, 1998.
Secretary, Farm Credit Administration Board.
[FR Doc. 98-24633 Filed 9-14-98; 8:45 am]
BILLING CODE 6705-01-P