[Federal Register Volume 61, Number 160 (Friday, August 16, 1996)]
[Proposed Rules]
[Pages 42570-42577]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20486]
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FEDERAL HOUSING FINANCE BOARD
12 CFR Parts 932 and 941
[No. 96-55]
Selection and Compensation of Federal Home Loan Bank Employees;
Selection of the Director of the Office of Finance and Compensation of
the Employees of the Office of Finance
AGENCY: Federal Housing Finance Board.
ACTION: Proposed rule.
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[[Page 42571]]
SUMMARY: The Federal Housing Finance Board (Board) is proposing to
amend the provisions of its regulations governing the selection and
compensation of employees of the Federal Home Loan Banks (Banks) in
order to streamline regulatory requirements and transfer specific
functions currently performed by the Board to the board of directors of
each Bank, including the establishment of incentive payment measures
for Bank Presidents based on each Bank's fulfillment of its mission.
The Board is proposing also to amend its regulation governing the
Federal Home Loan Bank System's Office of Finance (OF) to provide for
the annual appointment of the Director of the OF and for the
compensation of the Director and the other employees of the OF.
DATES: Comments on this proposed rule must be received in writing on or
before October 15, 1996.
ADDRESSES: Mail comments to Elaine Baker, Executive Secretariat,
Federal Housing Finance Board, 1777 F Street, N.W., Washington, D.C.
20006.
FOR FURTHER INFORMATION CONTACT: Barbara Fisher, Director, Office of
Resource Management, (202) 408-2586; or David Guy, Associate General
Counsel, (202) 408-2536, Federal Housing Finance Board, 1777 F Street,
N.W., Washington, D.C. 20006.
SUPPLEMENTARY INFORMATION:
I. Statutory and Regulatory Background
A. Selection of Employees
1. Bank Employees. -Section 12(a) of the Federal Home Loan Bank Act
(Bank Act) provides that each Bank may select, employ, and fix the
compensation of Bank employees, subject to the approval of the Board.
See 12 U.S.C. 1432(a). Section 932.40 of the Board's regulations, which
governs the selection of Bank employees, provides that officers, legal
counsel, and employees of a Bank shall be elected or appointed in
accordance with the Bank's bylaws. See 12 CFR 932.40. Each Bank's
bylaws are subject to the approval of the Board. See 12 U.S.C. 1432(a).
Under each Bank's bylaws, the Bank elects or appoints its President
subject to Board approval.
Section 932.40 also sets forth conflicts of interest prohibitions
applicable to full-time officers or employees of a Bank, and to counsel
retained by a Bank. See 12 CFR 932.40. These provisions generally
prohibit a Bank employee from acting on behalf of a member or other
institution insured by the former Federal Savings and Loan Insurance
Corporation (FSLIC), except under specified circumstances and with the
consent of the FSLIC. Existing Sec. 932.40 extends this prohibition to
counsel and attorneys of any Bank, whether employed on a salary, fee,
retainer, or other basis, unless the Board consents to such
representation. See id.
2. OF employees. The current regulation regarding OF provides only
that the Director has responsibility for the overall daily management
of OF, including the employment and management of personnel. See 12 CFR
941.6(a)(3). It also provides that the board of directors of OF shall,
subject to Finance Board approval, select and employ the Director under
an annual contract of employment. See id. Sec. 941.9(b)(6).
B. Compensation
1. Bank Presidents and the Director of OF. Under section 12(a) of
the Bank Act, the compensation of all Bank employees is subject to
Board approval. See 12 U.S.C. 1432(a). However, under its existing
regulation on Bank employee compensation, prior Board approval is
required only for compensation of a Bank's President. See 12 CFR
932.41(a). Section 932.41 of the Board's existing compensation
regulation requires the board of directors of each Bank annually to
adopt and submit to the Board for its approval an appropriate
resolution showing the contemplated compensation of its President. Id.
In setting the compensation of their Presidents, the Banks are
governed by the Bank Presidents' Compensation Plan (Compensation Plan),
adopted by the Board on November 19, 1991, as amended from time to
time. See Bd. Res. No. 91-565 (as amended). The Compensation Plan
establishes base salary guidelines, merit increase (to base salary)
guidelines, and criteria for incentive payments for Bank Presidents.
The Compensation Plan requires each Bank annually to submit for Board
approval recommendations for merit increases to its President's base
salary and proposed incentive payments. The Director of OF also is
subject to the Compensation Plan. See, e.g,. Bd. Res. No. 95-33 (Oct.
5, 1995).
2. Other bank employees. Section 932.41(b) of the Board's existing
compensation regulation permits a Bank to fix the compensation of
officers other than the President without prior Board approval,
provided that such compensation is within ranges established by the
Board and the total limits for such compensation in the Bank's approved
budget. See 12 CFR 932.41(b). Each Bank may establish the amount and
form of compensation for all other employees (including legal counsel)
within the limits set forth in the Bank's approved budget. See id.
Section 932.41(b) also prohibits a Bank from paying a bonus to any
director, officer, employee, or other person. See id.
In Resolution No. 84-390, dated July 25, 1984, the Board's
predecessor agency, the Federal Home Loan Bank Board (FHLBB),
established a cap on compensation of Bank employees other than the
President, providing that the salary of the second-highest-paid Bank
officer may not exceed 80 percent of the Bank President's salary. This
resolution currently remains in effect. See 12 U.S.C. 1437 note.
3. OF employees. The current regulations provide no guidance on the
compensation of OF employees.
4. Benefits. Existing Sec. 932.41(b) does not specifically address
benefits provided by the Banks to their employees. It has been the
Board's practice to require the Banks to obtain prior Board approval
for any compensation of Bank Presidents, whether direct or indirect,
and whether payable in current periods or during future periods. This
may include a variety of benefits plans in which Bank Presidents are
participants, exclusive of other employees. It has been the Board's
practice to permit the Banks to adopt non-discriminatory qualified
benefits plans for their employees without Board approval.
II. Analysis of the Proposed Rule
As part of its continuing effort to transfer to the Banks those
functions currently performed by the Board that are related to Bank
management and governance, the Board proposes to amend Secs. 932.40 and
932.41 of its regulations to clarify the scope of the Banks' discretion
in selecting and fixing the compensation of Bank Presidents and other
Bank employees. The Board also proposes to amend Sec. 941.9 of its
regulations to codify the Board's existing practice regarding the
annual appointment and compensation of the Director of OF. In making
these proposals, the Board reiterates its position that,
notwithstanding the Board's broad statutory authority to approve all
aspects of the selection and compensation of Bank and OF employees, the
Banks' boards of directors and the board of directors of OF are
ultimately responsible for the effective and prudent management of the
Banks and OF, respectively, including the selection and compensation of
their officers and other employees.
A. Selection of Employees
1. Bank Presidents. The Board proposes to amend Sec. 932.40 to
clarify
[[Page 42572]]
the rules governing the appointment of Bank Presidents. Proposed
Sec. 932.40(a)(1) restates the Banks' statutory authority to appoint
their Presidents, and makes clear that such appointments are subject to
prior Board approval. Proposed Secs. 932.40(a)(2) and (3) codify the
Board's existing practice of approving the appointments of Bank
Presidents for one-year terms. Under these provisions, all appointments
expire on December 31 of the year for which the President is appointed,
without opportunity for holdover. To the extent that a Bank's by-laws
are inconsistent with this requirement, the by-laws are superseded by
Sec. 932.40(a)(2). Furthermore, the Board intends these provisions to
make clear that a Bank President appointed to fill a mid-term vacancy
is appointed to serve out the remainder of the one-year term of his or
her predecessor, and is not appointed for a full one-year term.
Proposed Sec. 932.40(a)(4) codifies the Board's existing procedure for
approval of appointments of the Bank Presidents. By November 1 of each
year, the board of directors of each Bank must adopt and submit to the
Board a resolution appointing or reappointing its President for the
following year. Section 932.40(a)(5) makes clear that no appointment of
a Bank President is effective until approved by the Board.
2. Other bank employees. Section 932.40(b) of the proposed rule
restates the Banks' statutory authority to appoint or elect officers
other than the President and to hire other employees of the Bank, and
makes clear that these activities do not require prior Board approval.
3. Conflicts of interests. Proposed Sec. 932.40(c) is intended to
update the conflicts of interest provisions in existing Sec. 932.40 by
eliminating references to the FSLIC, which was abolished by Congress in
1989. See 12 U.S.C. 1437 note. However, the Board is retaining, in
substance, the existing requirement that a Bank employee shall not act
in any capacity for certain specified institutions whose interests are
likely to be in conflict with the interests of the Bank. Specifically,
proposed Sec. 932.40(c) prohibits a Bank employee from being employed
by, or acting in any other capacity for, a Bank member or an
institution eligible to make application to become a Bank member.
In addition, the Board proposes to eliminate the final sentence in
existing Sec. 932.40, which extends the conflicts of interest provision
discussed above to outside counsel hired by a Bank and to other
attorneys acting on behalf of a Bank who are not Bank employees, except
in cases specifically approved by the Board. See 12 CFR 932.40. The
Board believes that the determination of whether outside counsel may
have a conflict of interest in a matter in which it is representing a
Bank is a decision that is properly within the purview of each Bank.
Further, the existing conflicts of interest provisions, as applied to
outside counsel, are duplicative of applicable requirements of state
codes of professional conduct and other ethics rules. Attorneys who
work for a Bank as salaried employees would continue to be subject to
the conflicts of interest provisions in proposed Sec. 932.40(c), since
those provisions continue to apply to all Bank employees.
4. The Director of the OF. The Board proposes to amend
Sec. 941.9(b)(6) by deleting the language regarding an annual contract
of employment for the Director of the OF, and adding a requirement for
the annual appointment of the Director of the OF, subject to prior
approval of the Board.
B. Compensation of Bank Employees and OF Employees
The Board proposes to amend existing Sec. 932.41 to increase the
amount of discretion the Banks may exercise in fixing the compensation
of their employees. The Board proposes to eliminate its Compensation
Plan for the Bank Presidents and to amend existing Sec. 932.41 to
permit each Bank to approve the base salaries, incentive payments, and
benefits for its President, within regulatory limitations approved by
the Board. Proposed Sec. 932.41 also clarifies the conditions under
which the Banks can fix the compensation of employees other than the
President, without prior Board approval.
The Board proposes to amend its regulation governing OF to permit
the board of directors of OF to establish the base salary of the
Director of OF under the same rules governing the base salaries of the
Bank Presidents, and to make incentive payments for the Director,
subject to prior Board approval. The Board also proposes to amend its
regulation to provide guidance regarding the compensation of other OF
employees that is consistent with the guidance for Bank employees.
The Board has not approved any change-of-control arrangements
between a Bank and its President or other officers providing for
payments as a result of a merger or other event qualifying as a change
of control. The Board requests detailed comments on whether the Banks
should be permitted to enter into change-of-control arrangements with
certain senior officers. Comments should include a detailed description
of the terms of any such arrangements and a supporting rationale.
1. Base salaries. Under proposed Sec. 932.41(b)(1), each Bank shall
establish the base salary of its President within the following salary
ranges, which ranges may be adjusted annually by the Board. The Board
shall publish a notice in the last quarter of the year preceding the
year in which adjustments are to take effect setting forth the
adjustments to these ranges for the next calendar year. Proposed
Sec. 932.4(b)(1)(i) codifies the 1996 salary ranges established by the
Board in Bd. Res. No. 95-33 (Oct. 5, 1995), as follows: 1) a Bank with
total assets as of December 31 of the prior year equal to or greater
than $40 billion shall have a base salary range for its President
beginning January 1, 1996, consisting of a minimum, mid-point, and
maximum dollar amount of $240,000, $305,000 and $385,000, respectively;
and 2) a Bank with total assets as of December 31 of the prior year
less than $40 billion shall have a base salary range for its President
beginning January 1, 1996, consisting of a minimum, mid-point, and
maximum dollar amount of $195,000, $245,000, and $310,000,
respectively. A newly appointed Bank President may not receive a base
salary higher that the mid-point of the applicable base salary range.
Beginning January 1, 1997, and annually thereafter, a Bank may
adjust the base salary of its President based on a merit increase rate.
The maximum merit increase rate shall be determined by the Board on an
annual basis. Any annual increase in a Bank President's base salary
shall not exceed the merit increase rate established by the Board, nor
shall such annual increase result in a Bank President's base salary
exceeding the maximum dollar amount of the applicable base salary
range. No other adjustment may be made to a President's base salary
during the year without prior Board approval. By January 2 of each
year, a Bank must report to the Board the approved base salary of its
President.
The Board is proposing to amend Sec. 941.9 of its regulations to
authorize the board of directors of OF to establish the compensation of
the Director according to the base salary ranges and the merit increase
rate governing the salaries of the Bank Presidents, subject to prior
Board approval. For purposes of determining the applicable base salary
range, OF is deemed to have assets of less than $40 billion.
The Board currently determines the salary ranges for Bank
Presidents using a comparability model based on the salaries of the
chief operating officers of
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private financial subsidiaries of similar asset size and geographic
location, offset by staff size. The Board specifically requests comment
on whether there is a more appropriate universe of entities that should
be used in establishing the comparability of the Bank Presidents'
salaries. For instance, it has been suggested that the salaries of the
Bank Presidents should be comparable to the salaries of the Presidents
(or their equivalent) of the Federal Reserve Banks, other segments of
the financial services industry, or other federally or state-created
entities with similar size, functions, and mission. Comments should
include specific examples of government entities on which comparability
should be based and a rationale for including such entities in the
universe.
In regulating the salary levels of the Bank Presidents and other
Bank employees, one of the Board's objectives is to attract and retain
competent individuals to the Bank System. The Board recognizes that, in
setting the salary levels for the Bank Presidents, it also is affecting
the salary levels of other Bank employees.
Under proposed Sec. 932.41(b)(2), each Bank generally may establish
base salaries for Bank employees other than the President without prior
Board approval, provided such salaries are reasonable and comparable
with the base salaries of employees of the other Banks and other
similar businesses, such as similar financial institutions, with
similar duties and responsibilities. Banks must maintain documentation
supporting the reasonableness and comparability of their employees'
base salaries. Similar provisions regarding OF employees are contained
in proposed Sec. 941.9(c).
Upon adoption of the proposed rule in final form, the Board intends
to rescind FHLBB Resolution No. 84-390, which requires the annual base
salary of the highest paid Bank employee other than the Bank President
to be less than or equal to 80 percent of the annual base salary of
that Bank President. See FHLBB Res. No. 84-390 (July 25, 1984).
However, a Bank would be required to report to the Board the approved
salary of the highest paid employee other than the Bank President by
January 2 of each year.
2. Incentive payments. Proposed Sec. 932.41(c) governs payments
made to Bank Presidents based on the quality of their on-the-job
performance. Such payments are defined in Sec. 932.41(a)(3) as
``incentive payments.'' As discussed below, Sec. 932.41(c) is intended
to preclude a Bank from making an incentive payment to a Bank President
based on the President's individual performance without regard to the
performance of the Bank. A Bank is prohibited from making any incentive
payment to its President if the most recent examination of the Bank by
the Board identified an unsafe or unsound practice or condition with
regard to the Bank. The Board specifically requests comment on whether
there are other events or conditions that should result in a
prohibition on incentive payments to Bank Presidents.
At least 20 percent of any incentive payment for a Bank President
must be based on the following criteria illustrating the Bank's
emphasis on the portion of its mission involved with support for member
credit activities: (1) average annual advances outstanding; and (2)
average annual letters of credit outstanding and average annual
notional principal outstanding in swap and option contracts with
members. At least 30 percent of any incentive payment must be based on
the following criteria illustrating the Bank's emphasis on additional
support for housing and community development finance: (1) average
annual Community Investment Program (CIP) advances outstanding, which
are provided in support of new CIP lending activity, not as
refinancings of existing CIP-eligible loans originated more than 30
days prior to the CIP financing request, nor for the purpose of
borrower balance sheet restructuring; (2) average annual consolidated
obligation principal customized for and issued to state or local
government agencies, non-profits, foundations, and other entities, the
proceeds of which serve unmet needs; and (3) average annual balances
outstanding of investments identified as fulfilling unmet needs by the
Board, where such investments are in accordance with items 11 and 12 of
section IIB of the Financial Management Policy for the Federal Home
Loan Bank System, and other investments approved by the Board. The
Bank's board of directors must assign a weight greater than zero to
each of the five above-described criteria as it deems appropriate,
based upon the board's view of the importance of each of these criteria
in the Bank's fulfillment of its mission.
Any portion (up to 50 percent) of the incentive payment that is not
based on the above-described criteria must be based on the Bank's
performance in achieving other objectives established by the Bank's
board of directors.
The Bank's board of directors must establish reasonable numerical
measures of performance and reasonable numerical targets for the
achievement of the performance criteria discussed above. Performance
targets must be set at such a level as to show an improvement in the
Bank's performance over the prior year or an extraordinary achievement
in attaining the designated target.
By January 1 of each year, the board of directors of each Bank that
intends to make any incentive payment to its President for such year
shall adopt and submit to the Board a resolution establishing the
performance measures and targets on which such incentive payment will
be based.
Proposed Secs. 932.41(c)(8) and (9) set forth the manner in which a
Bank President's incentive payment is to be calculated, based on the
Bank's achievement of the performance targets set by the board of
directors. Under the Compensation Plan, prior to the most recent
amendment, the maximum incentive payment payable to a Bank President
was 37.5 percent of base salary. The Plan was amended on July 25, 1996,
by Resolution Number 96-54, to limit an incentive payment to 31.25
percent of base salary. The Board specifically requests comment on the
appropriateness of and reasons for setting the maximum percentage at
some point in the range between zero and 37.5 percent.
Proposed Secs. 932.41(c)(10) provides that by March 1 of each year,
the board of directors of each Bank making any incentive payment to its
President for the prior year shall adopt and submit to the Board a
resolution showing the results for the individual performance measures
and the amount of the incentive payment to the Bank President. Such
incentive payment shall be deemed approved by the Board and payable to
a Bank President only if determined in accordance with the requirements
of Sec. 932.41(c).
The Board is proposing to authorize the board of directors of OF to
make incentive payments to the Director of OF, subject to prior Board
approval. Proposed Sec. 941.9(c)(2) authorizes OF board of directors to
establish the criteria, performance measures, and targets on which any
such incentive payment is based. OF is prohibited from making any
incentive payment to the Director if the most recent examination of OF
identified an unsafe or unsound practice or condition with regard to
OF.
The Board wishes to make clear that the proposed rule does not
require a Bank or OF to make an incentive payment, but if a Bank or OF
chooses to make such a payment, it must meet the requirements of
proposed Sec. 932.41(c) or Sec. 941.9(c)(2), respectively.
Proposed Sec. 932.41(d) carries forward the Board's current
practice of
[[Page 42574]]
permitting the Banks to make incentive payments to employees other than
the President without prior Board approval, and adds the requirement
that such incentive payments must be reasonable and comparable with
incentive payments made to employees of the other Banks and other
similar businesses (including financial institutions) with similar
duties and responsibilities. Banks must maintain documentation
supporting the reasonableness and comparability of their employees'
incentive payments. Similar provisions regarding OF employees are
contained in proposed Sec. 941.9(c).
3. Benefits. Proposed Sec. 932.41(e) is intended to permit the
Banks to establish certain kinds of benefits plans for their employees,
and to provide benefits pursuant to such plans, without prior Board
approval. This section provides that a Bank may make payments in the
nature of benefits to its President and other Bank employees only
pursuant to a ``benefit plan'' or a ``bona fide deferred compensation
plan or arrangement,'' which are specifically defined in proposed
Secs. 932.41(a)(1) and (2). Proposed Sec. 932.41(e) codifies the
Board's current practice of permitting the Banks to adopt benefit plans
without prior Board approval if such plans are open for participation
by all Bank employees. However, this section changes the Board's
current practice of requiring the Banks to obtain prior Board approval
of plans that limit participation to a Bank's President and other
selected officers. Similar provisions regarding OF employees are
contained in proposed Sec. 941.9(c).
4. Severance. Proposed Sec. 932.41(f) is intended to permit the
Banks to establish severance plans for their employees without prior
Board approval. Similar provisions regarding OF employees are contained
in proposed Sec. 941.9(c).
5. General Limits on Payments. Proposed Sec. 932.41(g)(1) is
intended to clarify that the provisions of Sec. 932.41 govern all
payments, as that term is defined in Sec. 932.41(a)(5), to Bank
employees, and any payments made to a Bank employee that are not in
accordance with Sec. 932.41 are prohibited. Proposed Sec. 932.41(g)(2)
requires the total amount of base salaries, incentive payments, and
benefits paid to Bank employees to be within the limit set forth in the
Bank's approved budget. The board of directors of each Bank must review
annually the compensation plan for its employees, including appropriate
documentation, prior to approving the Bank's annual budget. Proposed
Sec. 932.40(h) carries forward the existing prohibition on the payment
of bonuses to Bank employees and other persons. A bonus is defined as a
payment to an employee, other than base salary, benefits and severance,
that is not based on performance. Similar provisions regarding OF
employees are contained in proposed Sec. 941.9(c).
III. Regulatory Flexibility Act
The proposed rule applies only to the twelve Banks, which do not
come within the meaning of ``small entities,'' as defined by the
Regulatory Flexibility Act (RFA). 5 U.S.C. 601. Therefore, in
accordance with the RFA, the Board hereby certifies that the proposed
rule, if promulgated as a final rule, will not have a significant
economic impact on a substantial number of small entities.
List of Subjects
12 CFR Part 932
Conflict of interests, Federal home loan banks.
12 CFR Part 941
Organization and functions (Government agencies).
Accordingly, chapter IX, title 12, subchapter B, Code of Federal
Regulations, is hereby proposed to be amended as follows:
SUBCHAPTER B--FEDERAL HOME LOAN BANK SYSTEM
PART 932--ORGANIZATION OF THE BANKS
1. The authority citation for part 932 is revised to read as
follows:
Authority: 12 U.S.C. 1422a, 1422b, 1426, 1427, 1432; 42 U.S.C.
8101 et seq.
2. Section 932.40 is revised to read as follows:
Sec. 932.40 Selection.
(a) Bank Presidents. (1) Each Bank may appoint or reappoint a
President, subject to prior Board approval.
(2) A President of a Bank shall be appointed initially for a term
not to exceed one calendar year, expiring on December 31 of the year in
which the President takes office.
(3) A President may be reappointed to succeeding one-year terms,
each expiring on December 31 of the year for which the President is
reappointed.
(4) By November 1 of each year, the board of directors of each Bank
shall adopt and submit to the Board a resolution appointing or
reappointing its President for the following year.
(5) No appointment or reappointment of a Bank President shall be
effective until approved by the Board.
(b) Bank employees other than the President. Each Bank may appoint
or elect officers other than the President and may hire other employees
of the Bank without prior Board approval.
(c) Conflicts of interest. A Bank employee shall not also be
employed by, or otherwise act in any capacity for, a member or an
institution eligible to make application to become a member.
3. Section 932.41 is revised to read as follows:
Sec. 932.41 Compensation.
(a) Definitions. The following definitions apply for purposes of
this section:
(1) Benefit plan. Benefit plan means any plan, contract, agreement,
or other arrangement which is an ``employee welfare benefit plan,'' as
that term is defined in section 3(1) of the Employee Retirement Income
Security Act of 1974 (as amended) (29 U.S.C. 1002(1)), or other usual
and customary plans such as dependent care, tuition reimbursement,
group legal services or cafeteria plans.
(2) Bona fide deferred compensation plan or arrangement. (i) Bona
fide deferred compensation plan or arrangement means:
(A) Any plan, contract, agreement, or other arrangement whereby a
Bank employee voluntarily elects to defer all or a portion of the base
salary or incentive payment paid for services rendered which otherwise
would have been paid to such employee at the time the services were
rendered (including a plan that provides for the crediting of a
reasonable investment return on such elective deferrals) and the Bank
either:
(1) Recognizes compensation expense and accrues a liability for the
benefit payments according to generally accepted accounting principles
(GAAP); or
(2) Segregates or otherwise sets aside assets in a trust which may
only be used to pay plan and other benefits, except that the assets of
such trust may be available to satisfy claims of the Bank's creditors
in the case of insolvency; or
(B) A nonqualified deferred compensation or supplemental retirement
plan established by a Bank, other than an elective deferral plan
described in paragraph (a)(2)(i)(A) of this section:
(1) Primarily for the purpose of providing benefits for certain
employees in excess of the limitations on contributions and benefits
imposed by sections 415, 401(a)(17), 402(g) or any other applicable
provision of the Internal Revenue Code of 1986 (26 U.S.C. 415,
401(a)(17), 402(g)); or
(2) Primarily for the purpose of providing supplemental retirement
benefits or other deferred compensation for a select group of
management or
[[Page 42575]]
highly compensated employees (excluding payments under a severance plan
described in paragraph (a)(6) of this section).
(ii) The following requirements shall apply to any nonqualified
deferred compensation or supplemental retirement plans as described in
paragraph (a)(2)(i)(B) of this section:
(A) The plan must have been in effect at least one year prior to a
payment of benefits under the plan;
(B) Any payment made pursuant to such plan must be made in
accordance with the terms of the plan and any amendments to such plan
made during such one year period that do not increase the benefits
payable thereunder;
(C) The employee must have a vested right, as defined under the
applicable plan document, at the time of termination of employment, to
payments under such plan;
(D) Benefits under such plan must be accrued each period only for
current or prior service rendered to the employee;
(E) The Bank must have previously recognized compensation expenses
and accrued a liability for the benefit payments according to GAAP or
segregated or otherwise set aside assets in a trust which may only be
used to pay plan benefits, except that the assets of such trust may be
available to satisfy claims of the Bank's creditors in the case of
insolvency; and
(F) Payments pursuant to such plans shall not be in excess of the
accrued liability computed in accordance with GAAP.
(3) Incentive payment. Incentive payment means a direct or indirect
transfer of funds by a Bank to a Bank employee, in addition to base
salary, based on the employee's on-the-job performance.
(4) Nondiscriminatory. Nondiscriminatory means that the plan,
contract or arrangement in question applies to all employees of a Bank
who meet reasonable and customary eligibility requirements applicable
to all employees, such as minimum length of service requirements. A
nondiscriminatory plan, contract, or arrangement may provide different
benefits based only on objective criteria such as base salary, total
compensation, length of service, job grade or classification, which are
applied on a proportionate basis.
(5) Payment. Payment means:
(i) Any direct or indirect transfer of any funds or any asset;
(ii) Any forgiveness of any debt or other obligation;
(iii) The conferring of any benefit; and
(iv) Any segregation of any funds or assets, the establishment or
funding of any trust or the purchase of, or arrangement for, any letter
of credit or other instrument for the purpose of making, or pursuant to
any agreement to make, any payment on or after the date on which such
funds or assets are segregated, or at the time of or after such trust
is established or letter of credit or other instrument is made
available, without regard to whether the obligation to make such
payment is contingent on:
(A) The determination, after such date, of the liability for the
payment of such amount; or
(B) The liquidation, after such date, of the amount of such
payment.
(6) Severance plan. A nondiscriminatory pay plan or arrangement
which provides for payment of severance benefits to all eligible
employees upon involuntary termination other than for cause, voluntary
resignation, or early retirement; provided, however, that no employee
shall receive any such payment which exceeds the base compensation paid
to such employee during the 12 months immediately preceding termination
of employment, resignation or early retirement.
(b) Base salary--(1) Bank President. (i) Each Bank shall establish
the base salary of its President within the following salary ranges,
which ranges may be adjusted annually by the Board:
(A) A Bank with total assets as of December 31 of the prior year
equal to or greater than $40 billion shall have a base salary range for
its President beginning January 1, 1996, consisting of a minimum, mid-
point, and maximum dollar amount of $240,000, $305,000 and $385,000,
respectively; and
(B) A Bank with total assets as of December 31 of the prior year
less than $40 billion shall have a base salary range for its President
beginning January 1, 1996, consisting of a minimum, mid-point, and
maximum dollar amount of $195,000, $245,000, and $310,000,
respectively.
(ii) A newly appointed Bank President may not receive a base salary
higher than the mid-point of the applicable base salary range.
(iii) Beginning January 1, 1997, and annually thereafter, a Bank
may adjust the base salary of its President based on a merit increase
rate. The maximum merit increase rate shall be determined by the Board
on an annual basis. Any annual increase in a Bank President's base
salary shall not exceed the merit increase rate established by the
Board, nor shall such annual increase result in a Bank President's base
salary exceeding the maximum dollar amount of the applicable base
salary range under paragraph (b)(1)(i)(A) or (B) of this section. No
other adjustment may be made to a President's base salary during the
year without prior Board approval.
(iv) By January 2 of each year, a Bank must report to the Board the
approved base salary of its President.
(2) Other Bank employees. (i) Each Bank may establish base salaries
for employees other than the President without prior Board approval,
provided that such base salaries are reasonable and comparable with the
base salaries of employees of the other Banks and other similar
businesses (including financial institutions) with similar duties and
responsibilities. Banks shall maintain documentation supporting the
reasonableness and comparability of their employees' base salaries.
(ii) By January 2 of each year, a Bank must report to the Board the
approved salary of the highest paid employee other than the Bank
President.
(c) Incentive payments for Bank President. (1) Any incentive
payment made to a Bank President shall be based solely on the
performance of the Bank during the year in which the incentive payment
is earned, and shall be determined in accordance with the requirements
of this paragraph (c). A Bank shall not make any incentive payment to
its President if the most recent examination of the Bank by the Board
identified an unsafe or unsound practice or condition with regard to
the Bank.
(2) At least 20 percent of a Bank President's incentive payment
shall be based on the following criteria:
(i) Average annual advances outstanding; and
(ii) Average annual letters of credit outstanding and average
annual notional principal outstanding in swap and option contracts with
members.
(3) At least 30 percent of a Bank President's incentive payment
shall be based on the following criteria:
(i) Average annual Community Investment Program (CIP) advances
outstanding, which are provided in support of new CIP lending activity,
not as refinancings of existing CIP-eligible loans originated more than
30 days prior to the CIP financing request, nor for the purpose of
borrower balance sheet restructuring;
(ii) Average annual consolidated obligation principal customized
for and issued to state or local government agencies, non-profits,
foundations, and other entities, the proceeds of which serve unmet
needs; and
(iii) Average annual balances outstanding of investments identified
as fulfilling unmet needs by the Board,
[[Page 42576]]
where such investments are in accordance with items 11 and 12 of
section IIB of the Financial Management Policy for the Federal Home
Loan Bank System, and other investments approved by the Board.
(4) Up to 50 percent of a Bank President's incentive payment may be
based upon criteria identified by the Bank's board of directors,
provided such criteria reflect the Bank's performance in achieving its
mission during the year for which the incentive payment is being made.
(5) A Bank board of directors shall assign a weight greater than
zero for each of the criteria in paragraphs (c)(2) and (4) of this
section, as it deems appropriate based upon its view of the importance
of each of these activities in enabling the FHLBank to fulfill its
mission.
(6) The Bank's board of directors shall establish reasonable
numerical measures of performance under the performance criteria listed
in paragraphs (c) (2) and (3) of this section, as well as for any
criteria identified by the Bank's board of directors pursuant to
paragraph (c)(4) of this section, and shall establish reasonable
numerical targets for the achievement of such criteria. Performance
targets shall be set at such a level as to show an improvement in the
Bank's performance over the prior year or an extraordinary achievement
in attaining the designated target.
(7) By January 1 of each year, the board of directors of each Bank
that intends to make any incentive payment to its President for such
year shall adopt and submit to the Board a resolution establishing the
performance measures and targets on which such incentive payment will
be based.
(8) The amount of an incentive payment shall be based upon the
extent to which a Bank achieves the performance targets. A Bank must
achieve at least 100 percent of the target for a performance criterion
in order for any payment to be made based upon that criterion. A Bank
may increase the incentive payment to the extent that the Bank exceeds
the performance targets, as set forth in the following table [The
percentages in the right hand column of the table will be determined by
the Board, after review of public comments on this proposed rule.]:
Incentive Payment Level
------------------------------------------------------------------------
Bank performance as a percent of Total incentive payment as a
target percent of base salary
------------------------------------------------------------------------
150.0% -...........................
149.0% -...........................
148.0% -...........................
147.0% -...........................
146.0% -...........................
145.0% -...........................
144.0% -...........................
143.0% -...........................
142.0% -...........................
141.0% -...........................
140.0% -...........................
139.0% -...........................
138.0% -...........................
137.0% -...........................
136.0% -...........................
135.0% -...........................
134.0% -...........................
133.0% -...........................
132.0% -...........................
131.0% -...........................
130.0% -...........................
129.0% -...........................
128.0% -...........................
127.0% -...........................
126.0% -...........................
125.0% -...........................
124.0% -...........................
123.0% -...........................
122.0% -...........................
121.0% -...........................
120.0% -...........................
119.0% -...........................
118.0% -...........................
117.0% -...........................
116.0% -...........................
115.0% -...........................
114.0% -...........................
113.0% -...........................
112.0% -...........................
111.0% -...........................
110.0% -...........................
109.0% -...........................
108.0% -...........................
107.0% -...........................
106.0% -...........................
105.0% -...........................
104.0% -...........................
103.0% -...........................
102.0% -...........................
101.0% -...........................
100.0% -...........................
------------------------------------------------------------------------
(9) The total incentive payment earned by a Bank President for a
given year may not exceed [A percentage of base salary, to be
determined by the Board after review of public comments, from 0 to 37.5
percent.] of the President's base salary for that year.
(10) By March 1 of each year, the board of directors of each Bank
making any incentive payment to its President for the prior year shall
adopt and submit to the Board a resolution showing the results for the
individual performance measures and the amount of the incentive payment
to the Bank President. Such incentive payment shall be deemed approved
by the Board and payable to a Bank President only if determined in
accordance with the requirements of this paragraph (c).
(d) Incentive payment for other bank employees. Each Bank may make
incentive payments to employees other than the President without prior
Board approval, provided that such incentive payments are reasonable
and comparable with incentive payments made to employees of the other
Banks and other similar businesses (including financial institutions)
with similar duties and responsibilities. Banks shall maintain
documentation supporting the reasonableness and comparability of their
employees' incentive payments.
(e) Benefits. A Bank may make payments in the nature of benefits to
its President and to other Bank employees only pursuant to a benefit
plan and a bona fide deferred compensation plan or arrangement, as
defined in paragraphs (a)(1) and (2) of this section.
(f) Severance plans. A Bank may make payments in the nature of
severance to its President and to other Bank employees only pursuant to
a severance plan, as defined in paragraph (a)(6) of this section.
(g) General limits on payments. (1) No Bank shall make any payment
to a Bank employee, except as provided in this section.
(2) The total amount of base salaries, incentive payments, and
benefits paid to Bank employees shall be within the limit set forth in
the Bank's approved budget. The board of directors of each Bank shall
review annually the compensation plan for its employees, including
appropriate documentation, prior to approving the Bank's annual budget.
(h) Prohibition on bonuses. A Bank shall not pay any employee or
other person a bonus. For purposes of this paragraph (h), a bonus is a
payment to an employee, other than base salary, benefits, and severance
payments, that is not based on performance.
PART 941--OPERATIONS OF THE OFFICE OF FINANCE
4. The authority citation for Part 941 is revised to read as
follows:
Authority: 12 U.S.C. 1422b, 1431.
5. Section 941.9 is amended by revising paragraph (b)(6) and by
adding paragraph (c) to read as follows:
Sec. 941.9 Duties of the Office of Finance Board of Directors.
* * * * *
(b) * * *
(6) Select and employ the Director, subject to the following
requirements:
[[Page 42577]]
(i) The Director shall be appointed initially for a term not to
exceed one calendar year, expiring on December 31 of the year in which
the Director takes office;
(ii) A Director may be reappointed to succeeding one-year terms,
each expiring on December 31 of the year for which the Director is
reappointed;
(iii) By November 1 of each year, the OF Board of Directors shall
adopt and submit to the Finance Board a resolution appointing or
reappointing its Director for the following year; and
(iv) No appointment or reappointment of a Director shall be
effective until approved by the Finance Board;
* * * * *
(c) Compensation--(1) Definitions. The definitions which appear in
Sec. 932.41 of this chapter apply to this paragraph (c).
(2) The Director. (i) Subject to prior Finance Board approval, the
OF Board of Directors shall establish and pay the base salary of the
Director, including any merit increase, in accordance with the
provisions of Sec. 932.41(b) of this chapter. For purposes of
Sec. 932.41(b) of this chapter, the OF shall be deemed to have total
assets of less than $40 billion. By January 2 of each year, OF must
report to the Finance Board the approved base salary of its Director.
(ii) Any incentive payment made to the Director shall be based
solely on the performance of the OF during the year in which the
incentive payment is earned, and shall be determined in accordance with
the requirements of this paragraph (c)(2)(ii), subject to prior Finance
Board approval. The OF shall not make any incentive payment to the
Director if the most recent examination of OF by the Finance Board
identified an unsafe or unsound practice or condition with regard to
OF. The Director's incentive payment shall be based upon criteria
identified by OF Board of Directors, which must establish reasonable
numerical measures and targets for the achievement of such criteria.
Performance targets shall be set at such a level as to show an
improvement in the performance of OF over the prior year or an
extraordinary achievement in attaining the designated target.
(iii) By January 1 of each year, the OF Board of Directors shall
adopt and submit to the Finance Board for approval a resolution
establishing the performance measures and targets on which any
incentive payment will be based.
(iv) The amount of an incentive payment shall be calculated in
accordance with the provisions of Sec. 932.41(c)(8) and (9) of this
chapter.
(v) By March 1 of each year, the OF Board of Directors shall adopt
and submit to the Finance Board a resolution showing the results for
the individual performance measures and the amount of the proposed
incentive payment to the Director.
(3) Other OF Employees. (i) The OF Board of Directors may establish
base salaries for employees other than the Director without prior
Finance Board approval, provided that such base salaries are reasonable
and comparable with the base salaries of employees of the Banks and
other similar businesses (including financial institutions) with
similar duties and responsibilities. The OF Board of Directors shall
maintain documentation supporting the reasonableness and comparability
of OF employees' base salaries.
(ii) By January 2 of each year, the OF must report to the Finance
Board the approved salary of the highest paid employee other than the
Director.
(iii) The OF board of directors may make incentive payments to
employees other than the Director without prior Finance Board approval,
provided that such incentive payments are reasonable and comparable
with incentive payments made to employees of the Banks and other
similar businesses (including financial institutions) with similar
duties and responsibilities. The OF Board of Directors shall maintain
documentation supporting the reasonableness and comparability of their
employees' incentive payments.
(4) Benefits. The OF may make payments in the nature of benefits to
its Director and to other OF employees only pursuant to a benefit plan
and a bona fide deferred compensation plan or arrangement, as defined
in Sec. 932.41(a) of this chapter.
(5) Severance plans. The OF may make payments in the nature of
severance to its Director and to other OF employees only pursuant to a
severance plan, as defined in Sec. 932.41(a) of this chapter.
(6) General limits on payments. (i) The OF shall not make any
payment to any OF employee, except as provided in this section.
(ii) The total amount of base salaries, incentive payments, and
benefits paid to OF employees shall be within the limit set forth in
the OF's approved budget. The OF Board of Directors shall review
annually the compensation plan for its employees, including appropriate
documentation, prior to approving the OF annual budget.
(7) Prohibition on bonuses. The OF shall not pay any employee or
other person a bonus. For purposes of this paragraph (c)(7), a bonus is
a payment to an employee, other than base salary, benefits, and
severance payments, that is not based on performance.
Dated: August 6, 1996.
By the Board of Directors of the Federal Housing Finance Board.
Bruce A. Morrison,
Chairman.
[FR Doc. 96-20486 Filed 8-15-96; 8:45 am]
BILLING CODE 6725-01-U
