Incentive Compensation Under The Dodd-Frank Regulatory Spotlight

Seven federal regulatory agencies¹ have issued joint proposed rules pursuant to Section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") that are expected to significantly impact current incentive-based compensation arrangements maintained by certain financial institutions for their executive officers and certain other covered persons.

The proposed rules, which are broad in scope and vague in many respects, generally would:

• Prohibit "covered financial institutions" from maintaining incentive-based compensation arrangements for "covered persons" that involve "excessive" compensation or encourage inappropriate risks;
• Impose additional stringent requirements on "larger covered financial institutions," including a requirement that at least half of the annual incentive-based compensation for covered persons be deferred for at least three years;