text: SECTION 1. SHORT TITLE.
  
      This Act may be cited as the ``Wall Street Compensation Reform Act 
  of 2010''.
  
  SEC. 2. EXECUTIVE COMPENSATION PAID BY SYSTEMICALLY SIGNIFICANT 
                FINANCIAL INSTITUTIONS.
  
      (a) In General.--Subsection (m) of section 162 of the Internal 
  Revenue Code of 1986 is amended by adding at the end the following new 
  paragraph:
              ``(6) Special rule for application to systemically 
          significant financial institutions.--
                      ``(A) In general.--In the case of an employer which 
                  is a systemically significant financial institution, 
                  this subsection shall apply with the following 
                  modifications:
                              ``(i) Non-public entities.--Paragraph (1) 
                          shall be applied by substituting `employer' for 
                          `publicly held corporation'.
                              ``(ii) Covered employees.--Paragraph (3) 
                          shall be applied--
                                      ``(I) by substituting `such 
                                  employee is among the 25 highest 
                                  compensated employees' for so much of 
                                  subparagraph (B) as precedes `for the 
                                  taxable year (other than the chief 
                                  executive officer).', and
                                      ``(II) in addition to the 
                                  individuals described in such paragraph 
                                  (including the individuals described in 
                                  subclause (I) of this clause), by 
                                  treating any employee whose actions 
                                  have a material impact on the risk 
                                  exposure of the taxpayer as a covered 
                                  employee.
                          Any employee whose applicable employee 
                          remuneration for the taxable year exceeds 
                          $1,000,000 is presumed to engage in actions 
                          which have a material impact on the risk 
                          exposure of the taxpayer unless the taxpayer 
                          submits an information return to the Secretary 
                          which describes the role and responsibilities 
                          of such employee and the reason such employee 
                          should not be considered to have a material 
                          impact on the risk exposure of the taxpayer. 
                          Such return shall be deemed to have been 
                          approved unless the Secretary notifies the 
                          taxpayer in writing within 90 days of the 
                          submission of such return. For purposes of this 
                          clause, the term `employee' includes employees 
                          within the meaning of section 401(c)(1).
                              ``(iii) Remuneration payable on commission 
                          basis.--Subparagraph (B) of paragraph (4) shall 
                          not apply.
                              ``(iv) Deferred deduction executive 
                          remuneration.--In the case of any deferred 
                          deduction executive remuneration (as determined 
                          under rules similar to the rules of paragraph 
                          (5)(F), if executive remuneration for purposes 
                          of such paragraph included remuneration of 
                          covered employees as defined in clause (ii) of 
                          this paragraph, and if the year in which the 
                          applicable services were performed were treated 
                          as an applicable taxable year), rules similar 
                          to the rules of paragraph (5)(A)(ii) shall 
                          apply by substituting `$1,000,000' for 
                          `$500,000'.
                      ``(B) Systemically significant financial 
                  institution.--
                              ``(i) In general.--For purposes of this 
                          paragraph, the term `systemically significant 
                          financial institution' means an entity which 
                          engages primarily in activities which are 
                          financial in nature (as determined under 
                          section 4(k) of the Bank Holding Company Act of 
                          1956), and which--
                                      ``(I) owns or controls assets 
                                  greater than $25,000,000,000, or
                                      ``(II) owns or controls assets 
                                  greater than $10,000,000,000 and 
                                  maintains a ratio of debt to equity 
                                  which is greater than 20 to 1.
                              ``(ii) Classification.--A taxpayer which is 
                          a systemically significant financial 
                          institution for any taxable year shall be a 
                          systemically significant financial institution 
                          for purposes of all subsequent taxable years.
                      ``(C) Special rules for performance-based 
                  compensation.--Remuneration payable solely on account 
                  of the attainment of one or more performance goals 
                  (hereinafter `performance-based remuneration') which is 
                  paid by any systemically significant financial 
                  institution to any covered employee (as determined 
                  under subparagraph (A)(ii)) shall not be excluded under 
                  subparagraph (C) of paragraph (4) from treatment as 
                  applicable employee remuneration unless the following 
                  requirements are met:
                              ``(i) Performance-based compensation 
                          pool.--The amount and allocation of the 
                          taxpayer's performance-based remuneration for 
                          covered employees are determined by the 
                          compensation committee required under paragraph 
                          (4)(C)(i) by taking into account--
                                      ``(I) the cost and quantity of 
                                  capital required to support the risks 
                                  taken by the taxpayer in the conduct of 
                                  the financial activities of the 
                                  taxpayer,
                                      ``(II) the cost and quantity of the 
                                  liquidity risk assumed by the taxpayer 
                                  in the conduct of such activities, and
                                      ``(III) the timing and likelihood 
                                  of potential future revenues from such 
                                  activities.
                              ``(ii) Material terms.--The material terms 
                          of performance-based remuneration paid to 
                          covered employees specify that--
                                      ``(I) not less than 50 percent of 
                                  such remuneration must vest no earlier 
                                  than 5 years after the date of payment,
                                      ``(II) the proportion of such 
                                  remuneration payable under vesting 
                                  arrangements must increase based on the 
                                  level of seniority or responsibility of 
                                  the employee,
                                      ``(III) such remuneration payable 
                                  under vesting arrangements must vest on 
                                  a basis no faster than pro rata over 
                                  the specified number of years of such 
                                  arrangement (not to be less than 5),
                                      ``(IV) such remuneration is 
                                  contingent on a formal agreement 
                                  between the taxpayer and the employee 
                                  which forbids the use of personal 
                                  hedging strategies, remuneration-
                                  related insurance, or liability-related 
                                  insurance which undermines the risk 
                                  alignment effects of this paragraph,
                                      ``(V) in the case of an employer 
                                  which is a publicly held corporation, 
                                  not less than 50 percent of such 
                                  remuneration must be in the form of 
                                  stock in the employer, and
                                      ``(VI) in the case of remuneration 
                                  paid to a chief executive officer or 
                                  chief financial officer (if such chief 
                                  financial officer is a covered 
                                  employee) of a publicly held 
                                  corporation, such remuneration must be 
                                  subject to substantial forfeiture 
                                  requirements in the event the taxpayer 
                                  is required to prepare an accounting 
                                  restatement due to material 
                                  noncompliance, as a result of 
                                  misconduct, with any financial 
                                  reporting requirement under Federal 
                                  securities laws.
                          For purposes of this clause, the date on which 
                          remuneration is deemed to have vested is the 
                          first date on which such remuneration is not 
                          subject to a substantial risk of forfeiture 
                          (within the meaning of section 409A(d)(4)).
                      ``(D) Special rule for performance-based 
                  compensation paid by non-public entities.--In the case 
                  of a systemically significant financial institution 
                  which is not a publicly held corporation, in addition 
                  to the requirements of subparagraph (C), paragraph 
                  (4)(C) shall be applied by substituting the following 
                  for clauses (i) through (iii) thereof:
                              ``(i) the taxpayer commissions an annual, 
                          external review of its compensation policies 
                          and practices, including an examination and 
                          analysis of the taxpayer's compliance with the 
                          requirements of this subsection, and
                              ``(ii) the taxpayer obtains certification 
                          from an unrelated third party commissioned to 
                          evaluated compensation practices that 
                          performance goals and other material terms 
                          under which the remuneration is to be paid are 
                          satisfied before any payment of such 
                          remuneration is made.'.
                  For purposes of the preceding sentence, all persons 
                  treated as a single employer under subsection (a) or 
                  (b) of section 52 or subsection (b) or (c) of section 
                  414 shall be treated as related taxpayers.
                      ``(E) Coordination with rules for employers 
                  participating in the troubled assets relief program.--
                  In the case of any systemically significant financial 
                  institution to which paragraph (5) applies for any 
                  taxable year, this paragraph shall not apply to any 
                  payment of remuneration to which such paragraph 
                  applies.
                      ``(F) Regulatory authority.--Not later than 180 
                  days after the date of the enactment of this paragraph, 
                  the Secretary shall prescribe such guidance, rules, or 
                  regulations of general applicability as are necessary 
                  to carry out the purposes of this paragraph, 
                  including--
                              ``(i) the method for valuing assets for 
                          purposes of subparagraph (B)(i),
                              ``(ii) the method for calculating the ratio 
                          described in subparagraph (B)(i)(II),
                              ``(iii) criteria for use in determining 
                          whether the actions of an employee have a 
                          material impact on the risk exposure of the 
                          taxpayer, and for determining what constitutes 
                          a substantial forfeiture requirement with 
                          respect to executive remuneration,
                              ``(iv) criteria for determining whether a 
                          remuneration agreement constitutes a hedging 
                          strategy, and
                              ``(v) anti-abuse rules to prevent the 
                          avoidance of the purposes of this paragraph, 
                          including by use of independent contractors.
                      ``(G) Application of paragraph.--This paragraph 
                  shall apply--
                              ``(i) in the case of an entity which is a 
                          systemically significant financial institution 
                          in calendar 2010, to remuneration for services 
                          performed in calendar years beginning after 
                          2010, and
                              ``(ii) in the case of an entity which 
                          becomes a systemically significant financial 
                          institution in a calender year after 2010, to 
                          remuneration for services performed in calendar 
                          years beginning with the second calendar year 
                          after the year in which such entity first 
                          becomes a systemically significant financial 
                          institution.''.
      (b) Conforming Amendment.--Subparagraph (G) of section 162(m)(5) of 
  the Internal Revenue Code of 1986 is amended by adding at the end the 
  following: ``Paragraph (6) shall not apply to any payment of 
  remuneration to which this paragraph applies.''.
      (c) Report on Performance-Based Compensation Paid by Publicly Held 
  Corporations.--
              (1) In general.--Each systemically significant financial 
          institution which is a publicly held corporation shall submit 
          to the Chairman of the Securities and Exchange Commission, and 
          shall make publicly available, an annual report on compensation 
          policies and practices which describes--
                      (A) the process used to develop and modify such 
                  institution's compensation policies, including the 
                  composition and the mandate of such institution's 
                  compensation committee,
                      (B) the actions taken by such institution to comply 
                  with section 162(m)(6) of the Internal Revenue Code of 
                  1986,
                      (C) any additional actions taken to implement the 
                  Principles for Sound Compensation Practices adopted by 
                  the Financial Stability Board established by the G-20 
                  Finance Ministers and Central Bank Governors,
                      (D) the most important design characteristics of 
                  such institution's compensation policies, including 
                  criteria used for performance measurement and risk 
                  adjustment, the linkage between pay and performance, 
                  vesting policy and criteria, and the parameters used 
                  for allocating cash versus other forms of remuneration,
                      (E) aggregate quantitative information on 
                  remuneration paid by such institution, differentiating 
                  between remuneration paid to senior executive officers 
                  and to employees whose actions have a material impact 
                  on the risk exposure of such institution, which 
                  indicates the amounts of remuneration for the financial 
                  year (divided into fixed and variable remuneration) and 
                  the number of employees to which such remuneration was 
                  paid, and
                      (F) the amount of remuneration paid by such 
                  institution during the financial year preceding the 
                  year of the report which was nondeductible by reason of 
                  section 162(m) of such Code.
              (2) Timing of report.--The report required under paragraph 
          (1) shall be submitted beginning in calendar year 2011 (or, if 
          later, the calendar year after the year in which an entity 
          first becomes a systemically significant financial institution 
          which is a publicly held corporation), at such time during such 
          year and each subsequent year as the Chairman of the Securities 
          and Exchange Commission shall specify.
              (3) Definitions.--Any term used in this subsection which is 
          also used in section 162(m)(6) of the Internal Revenue Code of 
          1986 shall have the same meaning as when used in such section.
      (d) Effective Date.--The amendments made by subsections (a) and (b) 
  shall apply to remuneration for services performed after December 31, 
  2010.
target: Wall Street Compensation Reform Act of 2010 - Amends the Internal Revenue Code to restrict the tax deduction for compensation paid to highly-paid employees of systemically significant financial institutions. Requires such compensation to be performance-based, to vest no earlier than five years after the date of payment, and to consist of 50% employer stock. Prohibits such highly-paid employees from using personal hedging strategies and remuneration or liability-related insurance and requires forfeiture of compensation paid to a chief executive or financial officer of such an institution if an accounting restatement is required due to material noncompliance, as a result of misconduct, with any federal financial reporting requirement.
  
  Defines a "systemically significant financial institution" as an entity which engages primarily in financial activities (as determined under the Bank Holding Company Act of 1956) and which: (1) owns or controls assets greater than $25 billion; or (2) owns or controls assets greater than $10 billion and maintains a ratio of debt to equity greater than 20 to 1.
  
  Requires each systemically significant financial institution which is a publicly held corporation to make an annual report on its compensation policies and practices to the Securities and Exchange Commission (SEC) and make such report publicly available.
feat_title: A bill to amend the Internal Revenue Code of 1986 to limit certain executive compensation paid by systemically significant financial institutions.