Agencies Unveil Revised Executive Compensation Proposal

The first of six regulatory agencies voted today to re-propose the executive compensation rule mandated by the Dodd-Frank Act. The National Credit Union Administration unveiled a 279-page proposal that prohibits incentive-based compensation arrangements for executives that the agencies believe could encourage excessive risk-taking behavior. Similar proposals are expected from the Federal Reserve, FDIC, OCC, SEC and FHFA in the coming weeks.

The proposed rule would apply to all banks with more than $1 billion in assets, and divides institutions into three “tiers” based on asset size. “Level 1” institutions (those with $250 billion or more in assets) are subject to the most stringent requirements under the rule, while “Level 2” institutions (those with $50 billion to $250 billion in assets) and “Level 3” institutions (those with $1 billion to $50 billion in assets) are subject to the rule in different forms.

Both Level 1 and 2 institutions would be required to defer a percentage of qualifying incentive-based compensation for executives and significant risk takers for a specified amount of time. Level 1 institutions would be required to defer 60 percent for executives and 50 percent for significant risk takers for a minimum of four years, while Level 2 institutions would be required to defer 50 percent for senior executives and 40 percent for significant risk-takers for a period of at least three years. Regulators would have discretion over requirements for Level 3 institutions.

The proposed rule also requires institutions to keep a record of senior executives and significant risk-takers and disclose the incentive-based compensation arrangements of those individuals. Additionally, the rule includes a “clawback” provision that allows a covered institution to recover vested incentive-based compensation if the executive or risk-taker engaged in behavior that was found to have hurt the firm. For more information, contact ABA’s Hu Benton or Shaun Kern.

Share.

About Author

Monica C. Meinert

Monica C. Meinert is deputy editor of the ABA Banking Journal and a senior editor at the American Bankers Association, where she oversees ABA Daily Newsbytes.