Thursday, I blogged on new proposed rules on incentive compensation for large financial institutions under Dodd-Frank Act Section 956. Today, I continue with what will be a series of blogs. I am seldom at a loss for words. However, after reading the new proposed rules (only a breezy 279 pages, not 500, as I was told yesterday), I found my professional vocabulary utterly inadequate. All I could say was OMG!
Importantly, DO NOT ignore these rules (and my posts) just because you do not work for a financial institution. Rather, view them as a preview of SEC requirements or “best practices” coming soon to a company or board meeting near you.
Having said that, all readers should know that the compliance date of the proposed rule would be the beginning of the first calendar quarter that begins at least 540 days after a final rule is published in the Federal Register. Seems like 2019 or later would be likely, and the proposed rule would not apply to any incentive-based compensation plan with a performance period that begins before the compliance date, so don’t cancel your plans for the weekend (that is why you have me).
The proposed rule identifies three categories of covered institutions based on average total consolidated assets with different and more restrictive requirements applying to the top levels:
- Level 1 (greater than or equal to $250 billion);
- Level 2 (greater than or equal to $50 billion and less than $250 billion); and
- Level 3 (greater than or equal to $1 billion and less than $50 billion).
The proposed rules are very detailed and full of new concepts. Therefore, I will be blogging them in small bits. Beginning next week, I will discuss the new definitions of the deferral, clawback, forfeiture, and adjustment rules. If you are a lawyer, compensation committee member, or other executive compensation professional, you may need to learn a new language, as the proposed rules create a series of new definitions – many of which do not match with professionals’ common understanding of the meaning of those terms. For example, the new definition of “significant risk-taker” in the proposed rules is 20 pages long.