[Federal Register Volume 85, Number 114 (Friday, June 12, 2020)]
[Notices]
[Pages 35970-35972]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12735]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. SIPA-181; File No. SIPC-2019-01]
Securities Investor Protection Corporation; Order Approving
Proposed Bylaw Change, as Revised by Amendment No. 1, Relating to SIPC
Board Compensation
June 9, 2020.
Pursuant to Section 3(e)(1) of the Securities Investor Protection
Act of 1970 (``SIPA''),\1\ the Securities Investor Protection
Corporation (``SIPC'') filed with the Securities and Exchange
Commission (``Commission'') on October 8, 2019 proposed bylaw changes
relating to the compensation of SIPC's Board of Directors (``SIPC
Board''). On October 24, 2019, SIPC consented to a 90-day extension of
time before the proposed bylaw change would take effect pursuant to
Section
[[Page 35971]]
3(e)(1) of SIPA.\2\ On November 19, 2019, SIPC filed a revised version
of the proposed bylaw change (the ``proposed bylaw change''). The
proposed bylaw change replaced and superseded the original filing in
its entirety. On December 10, 2019, SIPC consented to a 90-day
extension of time before the proposed bylaw change would take effect
pursuant to Section 3(e)(1) of SIPA.\3\ Pursuant to Section 3(e)(1)(B)
of SIPA, the Commission found that the proposed bylaw change involved a
matter of such significant public interest that public comment should
be obtained.\4\ Consequently, pursuant to Section 3(e)(2)(A) of
SIPA,\5\ notice soliciting comment on the proposed bylaw change was
published in the Federal Register on January 30, 2020.\6\ On February
24, 2020, SIPC consented to an extension until May 14, 2020, and on
April 1, 2020, SIPC consented to an additional extension until June 15,
2020, for the Commission to approve or institute proceedings to
determine whether the proposed bylaw change should be disapproved.\7\
The Commission received one comment regarding the proposed bylaw
change.\8\ For the reasons described below, the Commission finds that
the proposed bylaw change is in the public interest and is consistent
with the purposes of SIPA.\9\ Therefore, this order approves the
proposed bylaw change under Section 3(e)(2) of SIPA.\10\
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\1\ See 15 U.S.C. 78ccc(e)(1).
\2\ See id.
\3\ See id.
\4\ See 15 U.S.C. 78ccc(e)(1)(B).
\5\ See 15 U.S.C. 78ccc(e)(2)(A).
\6\ See Securities Investor Protection Corporation; Notice of
Filing of Proposed Bylaw Change, as Revised by Amendment No. 1,
Relating to SIPC Board Compensation; Correction, Release No. SIPA-
180A (Jan. 24, 2020), 85 FR 5513 (Jan. 30, 2020) (``Notice'').
\7\ See 15 U.S.C. 78ccc(e)(2)(B).
\8\ See Email from Martha C. Chemas, Esq., dated February 5,
2020 (``Chemas Email''). The comment on the proposed bylaw change is
available at https://www.sec.gov/comments/sipc-2019-01/sipc201901.htm.
\9\ See 15 U.S.C. 78ccc(e)(2)(D).
\10\ See 15 U.S.C. 78ccc(e)(2).
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I. Description of the Proposed Bylaw Change
A. Background
Under SIPA, the SIPC Board shall consist of seven members: Five
private sector directors and two public sector directors.\11\ The five
private sector directors are appointed by the President of the United
States and confirmed by the Senate. Of the five private sector
directors, three must be associated with, and representative of, the
securities industry, and two must not be associated with the securities
industry. SIPA provides that one of the public sector directors must be
an officer or employee of the Department of the Treasury and the other
must be an officer or employee of the Federal Reserve Board. Only
directors from outside of the securities industry can serve as
Chairperson and Vice Chairperson of the SIPC Board.
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\11\ See 15 U.S.C. 78ccc(c).
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Under SIPA, all matters relating to director compensation are
governed by the SIPC Bylaws.\12\ The private sector directors are
entitled to receive an honorarium, which is paid from the SIPC
Fund.\13\ Since 1994, when the position of Chairperson ceased to be a
full-time position, the honoraria paid to the private sector directors
have been increased once (in 2006). The following chart shows the
honoraria for the Chairperson, Vice Chairperson, and other private
sector directors from 1994 to 2006 and from 2006 to the present.
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\12\ See 15 U.S.C. 78ccc(c)(5).
\13\ All expenditures from SIPC are required to be made out of
the SIPC Fund. See 15 U.S.C. 78ddd(a)(1).
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Bylaw date Bylaw Chairperson Vice chairperson Industry directors
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1994-2006................ Art. 2, Sec. 6......... $1,000/meeting, $500/meeting, $500/ Expenses only.
$500/day for day for official
official business business +
+ expenses. expenses.
2006-Present............. Art. 2, Sec. 6......... $15,000 honorarium $6,250 honorarium $6,250 honorarium
+ expenses. + expenses. + expenses.
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B. The Proposed Bylaw Change
SIPC proposes to modify Section 6 of Article 2 of the SIPC Bylaws
to: (1) Raise the Chairperson's yearly honorarium from $15,000 to
$28,000; (2) raise the other private sector directors' yearly
honorarium from $6,250 to $12,000; (3) authorize a $28,000 yearly
honorarium for a Vice Chairperson who temporarily serves as acting
Chairperson for a continuous twelve month period while the position of
Chairperson remains vacant; and (4) authorize a $28,000 yearly
honorarium for a private sector director to whom the SIPC Board
delegates authority to perform certain functions of the Chairperson and
who performs those functions for a continuous twelve month period while
the positions of Chairperson and Vice Chairperson remain vacant. SIPC
justified its proposed bylaw change by describing the enhanced
responsibilities and risk assumed by members of the SIPC Board. SIPC
explained the level of time commitment required of directors and noted
the need to attract and retain qualified directors.\14\
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\14\ SIPC's full rationale for why the honoraria should be
increased is set forth in its narrative accompanying the proposed
bylaw changes. See Notice, 85 FR at 5513-5515.
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In addition, SIPC explained that the SIPC Board, through its public
sector directors (who do not receive an honorarium), commissioned Korn/
Ferry International (``Korn/Ferry''), a global management and executive
consulting firm, to provide recommendations with respect to
compensation for SIPC Board members.\15\ Independent of the Korn/Ferry
study, the public sector directors formulated a separate approach to
the matter, using the per diem pay of a Senior Executive Service
(``SES'') government employee as a benchmark. Using this measure, the
public sector directors concluded that the private sector directors
should receive an honorarium of $12,000 per year. Applying the current
ratio of Chair versus non-Chair honoraria, the public sector directors
concluded that the honorarium of the Chair should be $28,000. SIPC
proposed that the bylaw change, if approved, would take effect six
months from the date of approval or non-disapproval by the
Commission.\16\
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\15\ Based upon a study of director compensation of a peer group
of 23 organizations comparable to SIPC, Korn/Ferry recommended that:
(1) Director compensation consist of an annual retainer paid
quarterly and ranging between $30,000 and $50,000; (2) the Vice
Chair receive an additional amount of $3,000 to $5,000 per year; and
(3) the Chair receive an additional $10,000 to $15,000 per year. By
comparison, SIPC proposes that: (1) Private directors receive
$12,000 a year; and (2) the Chair receives an additional amount of
$14,000 more than other directors.
\16\ Although the proposed bylaw change references May 6, 2020
as the date the quarterly installments of the honoraria begin, the
proposed bylaw change, including the increases in Board honoraria,
takes effect six months after the Commission's approval.
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II. Comments Received
The Commission received one comment on the proposed bylaw
change.\17\ The commenter--an individual--supported it.
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\17\ See Chemas Email.
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[[Page 35972]]
III. Commission Findings
Section 3(e) of SIPA sets forth the procedures for addressing
proposed SIPC rules and bylaws.\18\ Pursuant to Section 3(e)(1)(B) of
SIPA, the Commission found that the proposed bylaw changes involved a
matter of such significant public interest that public comment should
be obtained and required that the procedures applicable to SIPC
proposed rule changes in section 3(e)(2) of SIPA be followed.\19\
Section 3(e)(2) of SIPA sets forth the procedures for proposed rule
changes and provides that the Commission shall approve a proposed rule
change if it finds the change is in the public interest and is
consistent with the purposes of SIPA. As discussed below, the
Commission finds, pursuant to Section 3(e)(2)(D) of SIPA, that the
proposed bylaw change is in the public interest and consistent with the
purposes of SIPA.\20\
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\18\ See 15 U.S.C. 78ccc(e).
\19\ See Notice, 85 FR 5513.
\20\ See 15 U.S.C. 78ccc(e)(2)(D).
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As noted above, the SIPC Board's honoraria have not increased since
2006. However, SIPC states that the responsibility of the SIPC Board
members has increased since the 2008 financial crisis. For example,
since 2006, SIPC has been responsible for three major SIPA
liquidations: Bernard L. Madoff Investment Securities LLC; Lehman
Brothers, Inc.; and MF Global Inc. Moreover, Congress designated SIPC
to serve as trustee in the orderly liquidation of certain systemically
important broker-dealers in the Dodd-Frank Wall Street Reform and
Customer Protection Act of 2010.\21\ SIPC reports that these additional
responsibilities have coincided with an increase in the time commitment
for the role, including travel to attend SIPC Board meetings. In
addition, SIPC Board members have been sued in their capacity as Board
members.\22\ Finally, the Commission believes it is important to SIPC's
customer protection mission to recruit well-qualified individuals to
serve on the SIPC Board. SIPC directors should serve the public
interest and carry out its mission of protecting investors.
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\21\ See 12 U.S.C. 5385(a)(1).
\22\ See, e.g., Canavan v. Harbeck, Case No. 2:10-cv-00954-FSH-
PS (D.N.J. 2010).
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The Commission also believes that the proposed increases in the
honoraria are reasonable. In particular, the amount of the proposed
honoraria for the private sector directors that do not serve as Chair
($12,000 annually) is in line with the maximum compensation paid to an
SES government employee, after pro rating for the estimated number of
days worked per year.\23\ Using the SES government employee salary as a
benchmark is appropriate given the similarity in the seniority and
public mission of both SES government employees and SIPC Board members.
The proposed increase in the Chairperson's, acting Chairperson's, or
the SIPC Board-delegated Chairperson's honorarium from $15,000 to
$28,000 maintains the same approximate ratio between the current
private sector directors' honoraria and that of the Chairperson, acting
Chairperson, or the SIPC Board-delegated Chairperson.
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\23\ The maximum SES salary in 2019 was $192,300. See Salary
Table No. 2019-ES: Rates of Basic Pay for Members of the Senior
Executive Service (SES), available at https://www.opm.gov/policy-data-oversight/pay-leave/salaries-wages/salary-tables/pdf/2019/ES.pdf (effective January 2019). When pro rating that salary for 16
days of service a year on the SIPC Board, the equivalent amount
earned equals $12,307 (i.e., $192,300 * 16 days/250-day work year).
Therefore, the proposed honoraria of $12,000 approximates a pro-
rated version the current maximum SES salary.
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For these reasons, the Commission finds, pursuant to Section
3(e)(2)(D) of SIPA, that it is in the public interest and is consistent
with the purposes of SIPA to increase the honoraria of the private
sector directors to account for the increased responsibilities and time
commitments associated with the positions and the potential legal risk
the private sector directors face, as well as to provide an incentive
to recruit well-qualified directors.\24\
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\24\ See 15 U.S.C. 78ccc(e)(2)(D).
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IV. Conclusion
It is therefore ordered, pursuant to Section 3(e)(2) of SIPA, that
the proposed bylaw change (SIPA 2019-01) is approved.\25\
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\25\ See 15 U.S.C. 78ccc(e)(2).
By the Commission.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12735 Filed 6-11-20; 8:45 am]
BILLING CODE 8011-01-P