Bank Regulators Scrutinize Deferred Compensation

Regulators across the US are likely to follow the trend established in Europe that is forcing global bank executives to delay portions of their pay as part of a proposal to prevent financial institutions from encouraging risky pay practices.

Under the Dodd-Frank legislation federal regulators are expected to set a rule that prohibits any pay structure which, ‘encourages inappropriate risks.’ The FDIC, SEC and four other watchdogs have been tasked with implementing the rules are required to complete the rulemaking by April, 2011.

In a recent interview with CNBC, Sheila Bair, FDIC’s chairman said that regulators were ‘close to agreement’ on this topic. However, the corporation is set to meet on January 18th to consider the proposal.

‘I think you will see required deferrals for executive management,’ says Bair.

According to news sources, the provision was added to the proposed law in response to a series of complaints that financial companies were paying executives based on short-term profit gains without considering the future of the broader economy or the long-term impact on the company.

Bair went on to point out that she hopes for the regulators to implement a ‘very measured and prudent’ plan that can effectively measure which large institution can raise their dividend payments.

Dodd-Frank also sets forth a ‘say-on-pay’ for shareholders at all public companies, which parallels the existing UK investors right to vote on directors’ pay at annual general meetings and further push for companies to publish the relative value of executive compensation in comparison to other employees.

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