Academic journal article Journal of Accountancy

The Federal Reserve, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the FDIC Issued Final Guidance to Ensure That Incentive Compensation Arrangements at Financial Organizations

Academic journal article Journal of Accountancy

The Federal Reserve, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the FDIC Issued Final Guidance to Ensure That Incentive Compensation Arrangements at Financial Organizations

Article excerpt

The Federal Reserve, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the FDIC issued final guidance to ensure that incentive compensation arrangements at financial organizations take risk into account and are consistent with safe and sound practices.

The guidance (available at tinyurl.com/26rfx3n) is designed to ensure that incentive compensation arrangements at banking organizations appropriately tie rewards to longer-term performance and do not undermine the safety and soundness of the firm or create undue risks to the financial system. Because improperly structured compensation arrangements for both executive and nonexecutive employees may pose safety and soundness risks, 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 guidance was effective upon publication in the Federal Register.

The Federal Reserve, in cooperation with the other regulators, has completed a first round of in-depth analysis of incentive compensation practices at large, complex banking organizations as part of a so-called horizontal review, a coordinated examination of practices across multiple firms. During the next stage, the banking agencies said they will conduct additional cross-firm, horizontal reviews of incentive compensation practices at the large, complex banking organizations for employees in certain business lines, such as mortgage originators. …

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