Feds to Set Out Bank Pay Guidelines

Bank regulators have announced that they will be releasing new guidelines for incentive structures:

WASHINGTON (Reuters) - Bank regulators on Monday issued final guidance for financial firms to follow in determining incentive pay for employees so that safety and soundness of the banking system won't suffer.

The rules flow from the crisis that wracked the financial system in 2008 and are substantially the same as initial proposals that the Federal Reserve issued last October.

Three broad principles are set out in the guidance: that incentive pay is set in a manner that doesn't encourage "imprudent risk"; that pay arrangements are matched to banks' risk-management controls; and that "active and effective oversight by the organizations' board of directors" is applied to pay.

The Office of the Comptroller of the Currency, Office of Thrift Supervision and the federal Deposit Insurance Corp are joining the Fed in final rules that will apply to all banking organizations that the agencies supervise.

"Flawed incentive compensation practices in the financial industry were one of many factors contributing to the financial crisis that began in 2007," the regulators said in a statement.

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