March 30, 2011

Agencies seek comment on proposed rule on incentive compensation

Board of Governors of the Federal Reserve System
Federal Deposit Insurance Corporation 
Federal Housing Finance Agency 
National Credit Union Administration 
Office of the Comptroller of the Currency 
Office of Thrift Supervision 
Securities and Exchange Commission

For immediate release

Federal financial regulatory agencies request comment on a joint proposed rule to ensure that regulated financial institutions design their incentive compensation arrangements to take account of risk. 

The proposed rule, which is being issued pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, would apply to certain financial institutions with more than $1 billion in assets. It also contains heightened standards for the largest of these institutions. 

In prohibiting incentive compensation arrangements that could encourage inappropriate risks, the proposal would require compensation practices at regulated financial institutions to be consistent with three key principles--that incentive compensation arrangements should appropriately balance risk and financial rewards, be compatible with effective controls and risk management, and be supported by strong corporate governance. The proposed rule complements guidance previously issued by the agencies, including guidance on sound incentive compensation policies issued by the banking agencies last year. 

The agencies are proposing that financial institutions with $1 billion or more in assets be required to have policies and procedures to ensure compliance with the requirements of the rule, and submit an annual report to their federal regulator describing the structure of their incentive compensation arrangements. The agencies are proposing that larger financial institutions, generally those with $50 billion or more in assets, defer at least 50 percent of the incentive compensation of certain officers for at least three years and that the amounts ultimately paid reflect losses or other aspects of performance over time. For purposes of credit unions, large financial institutions would be defined as those with $10 billion or more in assets. The FHFA proposed that the income-deferral provisions apply to all entities it regulates, regardless of size.

The agencies request comments on the proposed rule within 45 days of its publication in the Federal Register, which is expected soon.

Federal Register notice: HTML | PDF (380 KB)

Comments: Submit | View

Media Contacts:
Federal Reserve Barbara Hagenbaugh         202-452-2955
FDIC David Barr 202-898-6992
FHFA Stefanie Johnson 202-414-6376
NCUA Cherie Umbel 703-518-6330
OCC Kevin Mukri 202-874-5770
OTS William Ruberry 202-906-6677
SEC Office of Public Affairs 202-551-4120


Last Update: March 30, 2011