The SEC has proposed a rule that would require certain financial institutions, including broker-dealers and investment advisers with assets of at least $1 billion, to disclose the structure of their incentive-based compensation practices.

Under the proposed rule, subject financial institutions would be required to file annual reports disclosing information about incentive-based pay, including a narrative description of the firm's compensation arrangements, a description of the firm's policies and procedures relating thereto and a statement of the specific reasons why the firm believes the structure of its incentive-based compensation practices will help prevent material financial loss. The proposed rule would apply to compensation payable to all executive officers, employees, directors and principal shareholders of covered financial institutions.

The rule would also require subject financial institutions with over $50 billion in assets to defer for three years at least 50% of any incentive-based compensation for executive officers. Compensation would be required to be adjusted for losses incurred by the firm over the deferral period.

The rule is currently pending approval by federal regulators. Upon approval, it will be published in the Federal Register and open to public comment for 45 days.