US Financial Regulators Resume Work on Compensation Rules

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Three key US financial regulators have reignited efforts on a long-pending project aimed at revising executive compensation plans within financial firms to enhance sensitivity to risk.
The Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), and Federal Housing Finance Agency (FHFA) have jointly reintroduced the proposal. It mandates incentive-based plans to consider risks and allows clawback or forfeiture of pay, as outlined by the agencies.

This renewed initiative echoes a 2016 proposal, forming part of ongoing endeavors to implement new rules mandated by the 2010 Dodd-Frank financial reform law. The objective is to ensure that financial institution leaders aren’t incentivized to undertake excessive risks for personal gain.
FDIC Chairman Martin Gruenberg emphasized the significance, citing poor compensation practices as one of the factors contributing to the failure of Silicon Valley Bank last year. Gruenberg noted the broader systemic consequences of such practices within major financial institutions.

While the NCUA is expected to adopt the proposal soon, the SEC also has it on its rule-making agenda. However, the Fed’s stance remains unclear. Fed Chair Jerome Powell highlighted that compensation was a minor factor contributing to SVB’s issues, expressing reservations about the urgency of completing the rule this year. Powell emphasized the need to comprehensively understand the problem and proposed solutions tailored accordingly.