Clifford Chance

U.S. Agencies Issue Proposed Rule to Implement the Incentive-Based Compensation Requirement under Dodd-Frank

18 February 2011

The Office of the Comptroller of the Currency, Treasury; Board of Governors of the Federal Reserve System; Federal Deposit Insurance Corporation; Office of Thrift Supervision, Treasury; National Credit Union Administration ("NCUA"); U.S. Securities and Exchange Commission ("SEC"); and the Federal Housing Finance Agency ("FHFA") (collectively, the "Agencies") issued a joint proposed rule (the "Proposed Rule") on February 7, 2011 to implement Section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Act"), which generally prohibits incentive-based compensation practices at "covered financial institutions" (as defined below) which encourages inappropriate risk-taking. The Proposed Rule would require the reporting of incentive-based compensation arrangements by a covered financial institution and prohibit incentive-based compensation arrangements at the covered financial institution that are deemed to be excessive, or that may expose the institution to inappropriate risks that could lead to a material financial loss. In addition, the Proposed Rule would establish standards for determining whether an incentive-based compensation arrangement violates the above prohibitions.

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