Friday, March 4, 2011
The SEC proposed a rule that would require certain financial institutions to disclose the structure of their incentive-based compensation practices and prohibit such institutions from maintaining compensation arrangements that encourage inappropriate risks. The proposed rule stems from Section 956 of Dodd-Frank, which requires the SEC and several other agencies to jointly write rules and guidelines in this regard. The SEC-regulated financial institutions affected by the rulemaking include broker-dealers and investment advisers with $1 billion or more in assets.
The SEC’s proposed rules for certain financial institutions would:
- Require reports related to incentive-based compensation that they would file annually with SEC.
- Prohibit incentive-based compensation arrangements that encourage inappropriate risk-taking by providing excessive compensation or that could lead to material financial loss to the firm.
- Provide additional requirements for financial institutions with $50 billion or more in assets, including deferral of incentive-based compensation of executive officers and approval of compensation for people whose job functions give them the ability to expose the firm to a substantial amount of risk.
- Require them to develop policies and procedures that ensure and monitor compliance with requirements related to incentive-based compensation.
Public comments on the rule proposal should be received within 45 days after it is published in the Federal Register.