Regulators now need to sign off on compensation program design for all covered employees among the 25 largest complex banking organizations (LCBOs). Based on client experience and a review of 2012 proxy statements for these institutions, consultants from Compensation Advisory Partners identified key themes among these largest financial companies.
Key themes found in the report:
1. Regulators are highly involved in the compensation design process at large bank holding companies for a sizeable number of employees (ranging from senior executives to employees well below that level).
2. A majority of variable executive compensation is linked to long-term performance and risk outcomes; it is now typical that more than the required 50 percent of incentive pay (annual + long-term) be deferred over at least three years.
3. Performance adjustments are now expected before and after the grant of incentive compensation, and the role of the risk function and formal risk assessments in that process has increased.
4. Long-term incentive goals must now balance business plan and shareholder goals (earnings per share, total shareholder return, etc.) with risk-based ex-post performance features (capital goals, etc.).
5. It is majority practice to have stock ownership requirements for senior executives that go beyond a more traditional guideline (multiple of base or number of shares achieved within a certain number of years).
6. Clawback provisions go beyond what is required by Sarbanes-Oxley or expected under Dodd-Frank.
For the full report, click here.