2011 Articles

Proposed UK Disclosure Rules: Top Eight Executives below the Board

The UK Treasury is consulting on proposed regulations to require larger banks to publish anonymous remuneration details for each of the top eight UK-based executives below the board “to enhance the transparency of the relationship between risk and reward for the highest paid senior executives in the largest banking institutions.”  The consultation runs until 14 February 2012. 

Will There Be a Lasting Reset in Pay Levels?

As banks begin to make their year-end pay decisions, it is clear that incentive pay for employees across investment banking, equities and fixed income will decrease at most firms, particularly the largest ones. Veterans of compensation management know that pay tends to be cyclical and closely aligned to business performance, and that it takes a discerning eye to differentiate between a typical cyclical variance and an actual reset, which is far less common.

Emerging Regions Update

A team of our consultants provide an update on emerging regions including Brazil, Russia, India, China, Middle East, and South Africa.

Infrastructure Pay Update: Rebalancing Value

In a previous article, we discussed how banks largely “back into” funding incentive pay for their Infrastructure or support groups. Many firms use hard financial metrics to measure performance and create incentive funding in their revenue generating areas, and only after these obligations have been satisfied, divide up the balance for the Infrastructure groups.

What Does the Fed Really Want? Practical Ways to Meet the Fed’s Guidelines

For the better part of two years the Federal Reserve Bank and the nation’s largest banks (also known as “LCBOs”—Large Complex Banking Organizations) have been trying to come to agreement on the best way to minimize the possibility that incentive plans would encourage executives and employees to put the bank’s balance sheet at risk for their own personal gain. In short, they want to ensure that compensation is not a contributing factor to future financial crises.

How Motivated Is Motivated Enough?

Prior to the financial crisis, most people outside of the sector likely never gave compensation and incentive plan design a second thought. As the crisis unfolded and the government set out to identify the contributing factors, however, evaluating compensation practices became an important exercise for regulators and banks. The government’s point of view was that banking organizations often rewarded employees for increasing revenue or short-term profit without adequate regard for the risk those activities posed to the organization and the financial system at large.

Shareholders at the Top 50 Say “Yes” on Pay

​If investors are dissatisfied with executive pay, voting results during this proxy season are certainly not reflecting that sentiment. An overwhelming majority of shareholders at the top banks gave their approval on executive pay. However, shareholders have shown a desire to have ongoing input into the pay decision-making process by strongly supporting annual say on pay proxy votes.

What Does the Fed Really Want? Horizontal Review Update

All financial institutions have been besieged by a plethora of new rules coming from domestic and, in many cases, foreign regulators. The volume of compliance work is only outweighed by the collective concern about what these regulations will do to profitability, compensation and shareholder return. At the same time, the Federal Reserve’s (the Fed) position is quite simple and reasonable—they want to prevent compensation from contributing to a future financial crisis.

A Case for Rigor in the Glow of the Pipeline

2010 was a bounce back year for many Investment Banking firms focused on M&A, particularly smaller "boutique" shops. After painful years in 2008 and 2009, with low deal volume, scrambles to assemble restructuring teams, and speculation about the merits of countercyclical products and services, firms are bullish on the M&A pipeline and focusing on expansion. If the anticipated deal volume comes to fruition, this will likely be a prosperous year for the vast majority of firms in this space. There will be a small set of firms that will make the most of this opportunity and some that will simply ride the wave up and then slide back down.

Proposed Rules: Incentive Compensation Arrangements Under the Dodd-Frank Act

The United States federal regulators are proposing rules (the “Rules”) to implement Section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) addressing incentive compensation arrangements with a focus on prohibited and excessive compensation.  On Monday, February 7, 2011, the FDIC published their version of the proposed Rules.  This client alert focuses on both the proposed rules as published, as well as specific areas where the regulators are asking for comment.  

Important CD&A Reminder: Use of Non-GAAP Performance Measures

In July of last year, the SEC staff issued a Compliance and Disclosure Interpretation (C&DI) covering the disclosure in the CD&A of "non-GAAP" financial measures. When the non-GAAP measure is disclosed as the target level of performance for an incentive plan, disclosure must be provided as to how the number is calculated from audited financial statements. However, if a non-GAAP measure is disclosed in the CD&A and is not a target measure (for example it is used in the CD&A or other parts of the proxy to explain the relationship between pay and performance or justify certain levels or amounts of pay), then disclosure of the non- GAAP measure is subject to the more onerous requirements of Regulation G and Item 10(e) of Regulation S-k.

Life after TARP

In 2010, we saw a number of firms repay their TARP funds through capital raises or retained earnings. In addition, for banks under $10 billion in assets the Small Business Lending Fund now provides an opportunity for the best performing TARP banks to swap their TARP capital and be unencumbered by the TARP compensation restrictions. As we look to 2011, we expect both these trends to continue and the pool of TARP banks to shrink.