Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Friday, March 4, 2011

SEC Proposes Rule on Incentive-Based Compensation at Financial Institutions

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.

http://lawprofessors.typepad.com/securities/2011/03/sec-proposes-rule-on-incentive-based-compensation-at-financial-institutions.html

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