Several federal financial regulatory agencies have proposed a rule to ensure that regulated financial institutions design their incentive compensation arrangements to take account of risk. The proposed rule, which is being issued pursuant to Dodd-Frank, would apply to certain financial institutions with more than $1 billion in assets. It also contains heightened standards for the largest of these institutions. In prohibiting incentive compensation arrangements that could encourage inappropriate risks, the proposal would require compensation practices at regulated financial institutions to be consistent with three key principles: incentive compensation arrangements should appropriately balance risk and financial rewards, be compatible with effective controls and risk management, and be supported by strong corporate governance. The comment period ended on May 31, 2011.
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