TCH has filed a comprehensive comment letter on the joint interagency proposal of incentive-based compensation restrictions under Section 956 of the Dodd-Frank Act. The letter highlights a range of legal and substantive concerns with the Agencies’ proposal, noting that whereas the statute directs the joint agencies to proscribe certain compensation arrangements (i.e., those that encourage inappropriate risk-taking that could lead to material financial loss, or by providing excessive compensation), the proposal would instead prescribe specific and detailed requirements that effectively amount to mandatory incentive compensation structures across covered firms.
The letter also notes that the proposal deviates from the existing, principles-based approach to compensation taken by the banking agencies, abandons years of collaborative work between financial institutions and regulators on compensation arrangements, and provides almost no evidence in support of the requirements that it seeks to impose on financial institutions. The letter also highlights the extent to which the proposal would cover a wide range of employees at institutions, many of whom the statute is clearly not intended to capture, which would impact institution’s talent acquisition and retention and stifle innovation in compensation practices.
The comment letter also contains a range of detailed, constructive suggestions intended to improve the proposal, including recommendations that the proposal should (i) apply only on a consolidated basis; (ii) expressly permit covered institutions that are also subject to the requirements of supervisors of non-U.S. jurisdictions to coordinate requirements; (iii) amend the definitions of senior executive officers, significant risk-takers and covered persons to more narrowly and appropriately focus on material risks and policy influence; (iv) revise various incentive compensation plan requirements; and (v) lessen the prescriptive governance requirements.
TCH also joined a financial industry joint-trades letter that made many of these same arguments at a more general level.