The Advisors' Blog

– Broc Romanek, CompensationStandards.com

Here’s news from Jeannemarie O’Brien and Adam Shapiro as written in this Wachtell Lipton memo:

Recently, several federal agencies, including the OCC, Federal Reserve, FDIC, OTS, NCUA, SEC and FHFA, jointly issued a finalized proposed rule regarding incentive-based compensation under section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 956 of Dodd-Frank prohibits covered financial institutions from having incentive compensation arrangements that encourage inappropriate risk because they provide excessive compensation or pose a risk of material financial loss to the covered institution.

The final proposed rule is substantially similar to the proposed rule approved by the FDIC on February 7, 2011 (see our February 18, 2011 memorandum). Certain agencies have modified the proposed general rule in their agency-specific rule. There is a 45-day comment period following publication of the proposed rule in the Federal Register, and the agencies have invited comments on a variety of topics, including with respect to the feasibility of complying with the final rule in the proposed time frame.

The final rule may become effective as early as year-end (six months after publication of the final rule in the Federal Register). As we previously advised, bank financials and non-bank entities that could be covered institutions, such as broker-dealers and investment advisers, should review the proposed rule, evaluate its potential application and impact and take the opportunity to seek clarification through the comment process. Companies should maintain flexibility in the design of their 2011 incentive compensation arrangements in order to accommodate the final rule and should consider creating a working group to develop a compliance action plan.

It’s also worth reading analysis of this proposal by Prof. Steven Davidoff…