Federal government set to limit Wall Street bonus pay

The National Credit Union Administration (NCUA) voted on Thursday to propose a new rule that restricts bonus pay for executives at mainly large and medium-sized financial institutions.

The regulation fulfills one of the outstanding provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (2010). Five other federal regulatory agencies must also adopt the rule, including the Federal Reserve and the Securities and Exchange Commission (SEC).

Specifically, NCUA proposal would invoke a four-year waiting period for the payment of bonuses and allow for pending payments to be canceled due to an employee’s poor performance as the result of violating financial laws or unnecessary financial risks.

The idea of the bonus limitations is to discourage large financial firms from making risky bets with their client’s money, which in part led to the 2008 financial crisis.

Since then, however, Wall Street firms have reconstructed their employees’ salary structure to reduce the chance of another collapse.

Executives, on the other hand, are increasingly being compensated based on performance. In 2011, for example, the CEO’s of Goldman Sachs and JPMorgan Chase received multi-million dollar bonuses based of their respective firms’ profits.

The NCUA proposal would limit the bonus pay for firms with assets totaling over $250 billion by withholding 60 percent of the money for nearly half a decade.

According to the SEC, 131 brokerage firms and 669 investment advising companies will be subject to the new regulation.

Within biggest banks themselves, five percent of top-earning employees would be effected, which translates to about 52,000 people.

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The six largest financial banks, including Goldman Sachs, JPMorgan Chase, Wells Fargo and Bank of America, have already cut 120,000 jobs since 2011, but increased theirĀ average bonus to $146,000 in 2015, up from $140,000 in 2009 and $110,000 in 2011.

The new rule will be open for public comments until July 22 and will take more than a year to implement after it is finally approved.

 

[Bloomberg] [Wall Street Journal] [Image courtesy nyulocal.com]