Just when you thought you could begin preparing for your annual meeting after filing your proxy statement, this morning, new proposed rules on incentive compensation for large financial institutions under Dodd-Frank Act Section 956 were issued. Only “embargoed” copies of the 500 pages of rules are available so far, and I don’t have one. However, the most significant changes appear to be that:
- Covered financial institutions must hold back [defer] a portion of covered employees’ incentive compensation for four years, rather than the three-year period in the 2011 proposed rules.
- The clawback period for covered institutions and covered employees is extended to seven years.
The rules create three levels of regulated institutions: over $250 billion in assets, over $50 billion in assets, and over $1 billion in assets, with more stringent requirements applicable to those institutions with larger assets.
So far, only the National Credit Union Administration has voted to approve the new proposed rules, which must be approved by six separate agencies.* The other five agencies, including the U.S. Securities and Exchange Commission (SEC), have meetings to discuss the rules scheduled in the next week.
Readers may recall that way back on February 7, 2011, the Office of the Comptroller of the Currency, Treasury (OCC), Board of Governors of the Federal Reserve System (Board), Federal Deposit Insurance Corporation (FDIC), Office of Thrift Supervision, Treasury (OTS), National Credit Union Administration, SEC, and Federal Housing Finance Agency jointly issued proposed rules pursuant to Section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
I blogged on these proposed rules at the time (see, for example, Proposed Rules on Incentive Compensation for Financial Institutions Mandate the Deferral of Compensation) and even testified before the Senate Banking Subcommittee on Financial Institutions and Consumer Protection. Those rules were placed on the back-burner and never finalized. Instead, the Fed began working directly with the largest financial institutions to reinvent their incentive compensation programs under the “Horizontal Review” of incentive compensation practices at large complex banking organizations. Additionally, the Fed looked to the 2010 Interagency Guidance on Sound Incentive Compensation Policies adopted by the OCC, Board, FDIC, and OTS.