- Refocus the Rule on Risk – Not Compensation Magnitude or Composition: In defining the scope of which incentive plans and participants are covered, the proposed rule does not consider risk potential, treating all plans and participants equally. This results in the coverage of an excessively broad scope of incentive plans, the vast majority of which have no potential of incentivizing risk taking leading to material financial harm to the enterprise. The Center recommends the final rule allow companies to identify plans which actually can create the risks contemplated by Section 956, then apply the requirements to only those plans.
- Replace the "Significant Risk-Taker" Framework with a Principles-Based Approach: The 2016 Proposed Rule imposes significant restrictions on "Significant Risk-Takers" who are generally non-executives purportedly able to subject the firm to material financial harm. However, the proposed rule defines a Significant Risk-Taker as the top highly compensated employees at a firm, regardless of the risk a person poses. The Center urges this framework be replaced with an effective approach already being used by regulators or a more reasonable dollar threshold test and points out the severe recruitment and retention challenges that firms would be subject to if the rules were finalized as proposed.
- Require a Deferral of Only Short-Term Incentive Compensation: Pointing out that long-term incentive compensation inherently reflects realized risk over time because it typically vests over three years or more, the Center urges that a final rule forgo the proposed additional deferral of both short and long-term incentive compensation and instead focus only on short-term.
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Authors: Henry D. Eickelberg
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Henry D. Eickelberg
Chief Operating Officer, HR Policy Association
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