SEC Proposal Would Limit Incentive Compensation at Advisers and Broker-Dealers
The SEC has voted to propose a rule requiring disclosures and limits on incentive-based compensation for employees of advisers and broker-dealers with more than $1 Billion in assets. The proposal would prohibit incentive-based compensation that “encourages inappropriate risks by providing covered persons with excessive compensation, or that could lead to material financial loss.” A firm’s compensation system would have to meet certain standards promulgated by the bank regulators. Firms would also have to make annual disclosures that would include a description of its policies and procedures governing its incentive-based compensation arrangements and how “the structure of its incentive-based compensation arrangement will help prevent it from suffering a material financial loss or does not provide covered persons with excessive compensation.” Firms with over $50 Billion in assets would be required to defer incentive-based compensation for executive officers to allow for future adjustments in the event of losses.
OUR TAKE: While we could take issue with the whole concept of regulating incentive compensation, at least the SEC should consider raising the threshold to $10 Billion. We are not sure that an adviser with $1 Billion in AUM really creates systemic risk. We also question the subjective standard used to determine “inappropriate risks.”
Posted by Todd Cipperman at 3/3/2011 8:28 AM 
Categories: Compliance and Operations
Tags: incentive compensation adviser brokerdealers disclosure
Categories: Compliance and Operations
Tags: incentive compensation adviser brokerdealers disclosure
Comments