Several Federal Agencies Issue Revised Proposed Rule Prohibiting Incentive Compensation for Excessive Risk Taking by Covered Financial Institutions
Several federal agencies, including the SEC, issued a joint revised proposed rule to implement Section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Proposed Rule”), which prohibits incentive-based compensation that encourages inappropriate risks by certain financial institutions. The Proposed Rule divides covered institutions into three tiers based on their average total consolidated assets. Although many aspects of the Proposed Rule are similar to the rule proposed in 2011, there are a few key differences. These differences include a new definition of incentive-based compensation that would not be considered to appropriately balance risk and rewards, a new recordkeeping requirement regarding the structure of incentive-based compensation, new requirements for deferral of incentive-based compensation, downward adjustments and clawbacks, and requirements for the structure of the institution’s compensation committee. The Proposed Rule is available here.