WASHINGTON, D.C.— Stephen Hall, Legal Director and Securities Specialist, issued the following statement in response to the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, National Credit Union Administration, and Federal Housing Finance Agency’s proposed rule on incentive-based compensation.
“Executive compensation policies that encouraged short-sighted and high-risk corporate behavior were major contributors to the financial crisis of 2008 and more recent financial crises. Section 956 of the Dodd-Frank Act and its provision calling for a regulatory framework governing executive compensation was one of the laws’ most important components. Yet, nearly 15 years after the passage of the law, regulators have failed to put it into action. The banking regulators’ announcement today is an important step towards implementing a rule that will help prevent the next financial crisis by increasing the accountability of executives while taxpayers are left to pick up the pieces. All six agencies involved in this process including the Fed and the SEC—must now step forward to approve this long overdue proposal. And in doing so, they must adopt strong provisions, including ensuring that claw backs are mandatory, not discretionary; that an appropriately high percentage of bonus compensation is deferred or delayed; and that hedging activity that nullifies some impacts of the rule is prohibited.
“Section 956 of the Dodd-Frank Act is one of the most important components of the regulatory framework governing executive compensation. It requires new disclosure requirements and prohibitions relating to incentive-based compensation arrangements offered by banks, broker-dealers, and other financial institutions. We know that executive compensation policies that incentivized financial firms and others to engage in accounting fraud or manipulation and high-risk business strategies to bulk up revenues and justify inflated salaries and bonuses are key factors that contribute to financial crisis. These arrangements put clients and investors at heightened risk when the financial system begins to unravel, while executives get to walk away with full pockets.
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Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.org.
