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Abstract: 

Six federal agencies—the Securities and Exchange Commission, National Credit Union Administration, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, Federal Housing Finance Agency, and the Board of Governors of the Federal Reserve System—have issued a joint Proposed Rule regarding incentive-based compensation, implementing Section 956 of the Dodd-Frank Act. The Proposed Rule would require major changes to incentive-based compensation programs at covered institutions. Certain parts of the Proposed Rule apply to all covered financial institutions, including direct prohibitions on certain types of incentive-based compensation arrangements, certain requirements for the boards of directors of covered institutions, and onerous disclosure and record-keeping requirements. In addition, larger covered institutions are required to subject incentive-based compensation to vesting requirements, downward adjustment and potential clawback, enhanced risk management controls and governance, and additional disclosure requirements. The Proposed Rule mandates an entirely new compliance and recordkeeping structure, which, as the authors explain, will likely be costly and complex to manage.

Keywords: Dodd-Frank Act, Dodd-Frank Sec. 956, incentive compensation, covered institution, covered persons, excessive compensation, prohibitions, disclosure requirements, recordkeeping25

Affiliations:  1: Latham & Watkins; 2: Latham & Watkins; 3: Latham & Watkins; 4: Latham & Watkins; 5: Latham & Watkins.