The Federal Reserve, the OCC, the OTS, and the FDIC issued final guidance, originally proposed by the Federal Reserve last year, to ensure that incentive compensation arrangements at financial organizations take into account risk and are consistent with safe and sound practices. The agencies have completed a first round of in-depth analysis of incentive compensation practices at large, complex banking organizations as part of their horizontal review, a coordinated examination of practices across multiple firms. The agencies will conduct additional cross-firm, horizontal reviews of incentive compensation practices at large, complex banking organizations for employees in certain business lines, such as mortgage originators, and will follow up on specific areas found to be deficient at many firms. The agencies are also working on incorporating oversight of incentive compensation arrangements into the regular examination process for smaller firms. The guidance is meant 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. 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 will become effective when published in the Federal Register, which is expected shortly.