12 U.S.C. § 4518 — Prohibition and withholding of executive compensation

(a) In general. The Director^* must stop a regulated entity^* from giving an executive officer^* compensation^* that is not reasonable and comparable to pay for similar work at similar businesses, including publicly held financial institutions and major financial-services companies. (b) Factors. When deciding this, the Director may consider any relevant factor, including wrongdoing by the executive officer. Wrongdoing includes a fraudulent act or failure to act, breach of trust or fiduciary duty, violation^* of a law, rule, regulation, order, or written agreement, and insider abuse involving the regulated entity. Approval of an agreement or contract under section 1723a(d)(3)(B) or 1452(h)(2) does not prevent a later decision under subsection (a). (c) Withholding. During the review, the Director may require the regulated entity to hold back an executive officer’s compensation payment, transfer, or disbursement, or put it in escrow. (d) No setting of compensation. The Director may not set a particular compensation amount or range. (e) Benefits for affiliated parties. (1) The Director may limit or prohibit, by regulation or order, a “golden parachute payment” or “indemnification payment.” This section does not otherwise define “affiliated party.” (2) The Director must issue regulations listing factors for those actions. They may include: (A) whether there is a reasonable basis to believe the affiliated party committed fraud, a breach of trust or fiduciary duty, or insider abuse that materially affected the entity’s financial condition; (B) whether there is a reasonable basis to believe the party was substantially responsible for the entity’s insolvency, conservatorship or receivership, or troubled condition, as defined by the Director’s regulations; (C) whether there is a reasonable basis to believe the party materially violated applicable Federal or State^* law or regulation that materially affected the entity’s financial condition; (D) whether the party had managerial or fiduciary responsibility; and (E) how long the party was affiliated with the entity and how much the payment reflects compensation earned during employment and a reasonable payment for services. (3) A regulated entity may not prepay an affiliated party’s salary, liability, or legal expense when the payment is made in anticipation of the entity’s insolvency or after an act of insolvency, and is intended to prevent assets from being properly applied to creditors or to favor one creditor over another. (4)(A) “Golden parachute payment” means a compensation payment, or agreement to pay, by a regulated entity for an affiliated party under an obligation that is contingent on ending the party’s affiliation and is received on or after the entity becomes insolvent, a conservator or receiver is appointed, or the Director determines the entity is in troubled condition as defined in the Director’s regulations. (B) A payment made before that date is treated as a golden parachute payment if it otherwise would qualify and was made in anticipation of one of those events. (C) The term does not include a payment under a retirement plan qualified, or intended to be qualified, under section 401 of title 26, or another nondiscriminatory benefit plan; a payment under a bona fide deferred-compensation plan or arrangement that the Director allows by regulation or order; or a payment because an affiliated party died or became disabled. (5)(A) Subject to paragraph (6), “indemnification payment” means a payment, or agreement to pay, by a regulated entity for a current or former affiliated party’s benefit to pay or reimburse liability or legal expense relating to an Agency^* administrative proceeding or civil action that ends in a final order assessing a civil money penalty, removing or prohibiting the person^* from taking part in the entity’s affairs, or requiring affirmative action to correct conditions resulting from violations or practices. (B) “Liability or legal expense” means legal or other professional expense for a claim, proceeding, or action; the amount and related cost of settling one; and the amount and related cost of a judgment or penalty. (C) “Payment” includes a direct or indirect transfer of funds or an asset, and setting aside funds or assets to make a later payment under an agreement, whether the obligation depends on later deciding liability or later liquidating the payment amount. (6) This subsection does not prohibit a regulated entity from buying commercial insurance or a fidelity bond. But, subject to paragraph (5)(A)(iii), the policy or bond may not cover the entity’s liability or legal expense described in paragraph (5)(A).