[Federal Register Volume 63, Number 178 (Tuesday, September 15, 1998)]
[Proposed Rules]
[Pages 49305-49307]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-24633]
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FARM CREDIT ADMINISTRATION
12 CFR Parts 611 and 620
RIN 3052-AB79
Organization; Disclosure to Shareholders; FCS Board Compensation
Limits
AGENCY: Farm Credit Administration.
ACTION: Proposed rule.
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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,
[[Page 49306]]
22102-5090 or sent by facsimile transmission to (703) 734-5784.
Comments may also be submitted via electronic mail to ``comm@fca.gov'' 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;
or
William L. Larsen, Senior Attorney, Office of General Counsel, Farm
Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TDD (703)
883-4083.
SUPPLEMENTARY INFORMATION:
I. Background
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, Sec. 611.1020 limited bank director
compensation to $200 per day, plus reasonable allowances for travel,
subsistence, and other related expenses.\1\ With the passage of the
Agricultural Credit Technical Corrections Act of 1988 (1988 Act),\2\
Congress modified FCA's regulatory authority over FCS bank director
compensation and established a $15,000 annual limit on bank director
compensation.\3\ The FCA published a final rule to reflect the
statutory changes.\4\ 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.
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\1\ See 52 FR 36012 (September 25, 1987).
\2\ Pub. L. 100-399, 102 Stat. 989 (1988).
\3\ See section 414 of the 1988 Act, which added section 4.21 of
the 1971 Act.
\4\ See 57 FR 43393 (September 21, 1992).
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The Farm Credit Banks and Associations Safety and Soundness Act of
1992 \5\ (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 Sec. 611.400
to incorporate the new FCS bank director compensation limits.\6\
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\5\ Pub. L. 102-552, 106 Stat. 4102 (1992).
\6\ See 59 FR 37406 (July 22, 1994).
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Current Sec. 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 Sec. 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.
II. Analysis
Since amending Sec. 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 Sec. 611.400, the Agency has not found it necessary to deny a
request for extraordinary director compensation.
Current Sec. 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 Sec. 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 Secs. 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, Sec. 611.400(d)(3)
would continue to require banks to maintain a written policy addressing
exceptional circumstances justifying additional
[[Page 49307]]
director compensation. The conforming changes to Sec. 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:
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,
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:
Sec. 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
Sec. 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 Sec. 611.400(c)(1)'' in the second
sentence.
Dated: September 9, 1998.
Floyd Fithian,
Secretary, Farm Credit Administration Board.
[FR Doc. 98-24633 Filed 9-14-98; 8:45 am]
BILLING CODE 6705-01-P
