This story appeared in Bank Digest.
The federal bank and thrift regulators have adopted new guidance that is intended to ensure that incentive compensation arrangements at financial organizations take into account risk and are consistent with safe and sound practices. The guidance applies not only to top-level managers, but also to other employees who have the ability to materially affect the risk profile of an organization, either individually or as part of a group. The agencies noted that they have already have completed a first round of in-depth analysis of incentive compensation practices at large, complex banking organizations as part of a “horizontal review” and have given the results to the institutions to address areas that require immediate attention. The regulators plan another round of such reviews to look at compensation for employees in certain business lines, such as mortgage originators. The reviews also will look at areas where deficiencies were found at many firms, such as determining which employees can affect risk, what risks are involved and whether the companies' plans are effective.




