The first of six regulatory agencies voted 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% for executives and 50% for significant risk takers for a minimum of four years, while Level 2 institutions would be required to defer 50% for senior executives and 40% 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.
Read the draft of the proposed rule.