June 03, 2016
This week, HR Policy's Center On Executive Compensation joined with the U.S. Chamber of Commerce and three other organizations in asking the six regulators charged with jointly issuing rules implementing limitations on financial services incentive compensation under Section 956 of the Dodd-Frank Act to extend the comment deadline to 150 days to allow for a sufficient time to evaluate and respond to the exceptionally broad and complex re-proposal. Included at the behest of those who blamed incentive compensation arrangements at financial services firms for incentivizing inappropriate risk-taking ahead of the 2008 financial crisis, Section 956 seeks to prohibit incentive pay arrangements at financial services firms which are "excessive" or which encourage inappropriate risk-taking. However, the 2016 re-proposed rule eschews a focus on the most serious risk and instead provides that all incentive compensation plans, regardless of the structure or participants, have the potential to pay excessive compensation while also creating an inappropriate baseline level of risk. As the letter states, if regulators fail to take the time to obtain meaningful input on the proposal, "business talent may leave certain industries in favor of others or flee to jurisdictions whose regulators more appropriately balance government's interest in discouraging excessive risk-taking with a firm’s liberty to make business judgments for the benefit of its owners." Even companies that will not be affected by the rules should pay attention, however, because of the proposal's disregard for the impact on talent could ultimately bleed into other executive compensation regulatory initiatives. The April 2016 rules implementing the requirement follow rules that were originally proposed by the six regulators in 2011. The five-year gap demonstrates the difficulty of achieving consensus on the requirement, but, at the strong urging of the White House, the re-proposal was accelerated. As the Center details in the letter, however, each of the six regulators approved its version of the reproposal over a staggered time frame, but all adopted the same comment period deadline, making the period as short as 67 days for the FHFA's proposal which as of the filing of the letter had yet to be published in the Federal Register. The Center's letter requests a 150 day comment period beginning upon the publication of the FHFA's rule in the Federal Register. If granted, the extra time will go a long way toward ensuring stakeholders have time to properly analyze the implications of the proposed rule.