U.S. regulators unveiled long-delayed rules Thursday that are aimed at discouraging inappropriate risk-taking by senior executives and key employees at major financial services firms. The proposals would require companies to withhold significant portions of pay, making it easier to take back awards -- even those already vested -- if an employee takes inappropriate risks or draws an enforcement action.
Here’s how regulators are defining the companies and people affected:
What kinds of financial firms may be covered by the rule?
Affected firms include deposit-taking banks, brokerages, credit unions, investment advisers and mortgage-finance giants Fannie Mae and Freddie Mac. In practice, the rule would exclude many money managers from the toughest restrictions, because of the way it tallies their assets -- counting only those that belong to the firm, not to clients. The proposal also gives federal regulators some leeway to jointly add any other financial institution, if they deem it necessary.
What role does a bank’s size play in deferring pay?
The rule is stiffest for banks with more than $250 billion in assets, requiring that an employer withhold 60 percent of a senior officer’s bonus for four years. Such firms include JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co., Citigroup Inc., Goldman Sachs Group Inc., Morgan Stanley, U.S. Bancorp, PNC Financial Services Group Inc. and Capital One Financial Corp.
Top executives at companies with assets between $50 billion and $250 billion would have half of their bonuses deferred for at least three years.
Who’s covered within firms?
Besides senior officers of each firm, the rule aims at “significant risk takers” whose incentive compensation accounts for at least one-third of total pay.
The group includes the highest-paid 5 percent of employees at the biggest banks. It’s hard to discern from current corporate filings how many people are paid that way. For example, Goldman Sachs Group Inc., which had total staff of about 36,500 at the end of March, doesn’t disclose a breakdown of base pay and incentive compensation across its workforce.
The other group that qualifies is anyone with “authority” to commit or expose 0.5 percent of a bank’s common equity Tier 1 capital. For Goldman Sachs, which had $70.9 billion of capital at the end of March, that would apply to anyone who could commit or expose $354.5 million of the bank’s capital.
How soon might the rules take hold?
Six regulators need to adopt the rules before they take effect. The National Credit Union Administration, a federal agency, became the first on Thursday to call a vote that would release them for public comment. Others, including the Federal Reserve and Securities and Exchange Commission, are expected to follow.
Depending on when the final rule is published, the proposed compliance date would provide at least 18 months, and in most cases more than two years, for covered institutions to develop and approve new bonus plans, as well as 18 months to develop supporting policies and internal controls, according to the NCUA.