US regulator wants remuneration compensation to be transparent at financial firms
WASHINGTON, DC - US financial services firms will have to disclose how they make decisions regarding remuneration of mid-ranking and lower-tier employees, according to proposals tabled by the Securities and Exchange Commission (SEC).
The rules - part of a wider review of risk and governance by US regulators - could be taken up next month for public consultation before final adoption, according to SEC chairman Mary Shapiro, speaking in Congress on Tuesday.
The changes do not mean requiring companies to disclose exactly what is paid in salaries, bonuses and other compensation to star traders and other employees, but they will require explanations regarding how they are paid and how compensation ties to the firm's overall risk management.
"Shareholders across America are concerned with large corporate bonuses in situations in which they, as the company's owners, have seen declining performance," said Shapiro in an online interview ahead of proposals in May.
"Many shareholders have asked Congress for the right to voice their concerns about compensation through an advisory 'say on pay'," she said. "Congress provided this right to shareholders in companies that received Troubled Assets Relief Program funds, and I believe shareholders of all companies in the US markets deserve this same right."
The regulator may also require firms to explain their relationships with compensation consultants, who negotiate large and opaque bonus packages for allegedly top-performing senior executives.
Current rules only require payment decisions to be explained for the top five employees within a firm, whereas the new rules could effectively supervise closely guarded remuneration policies for employees such as traders and sales staff across business lines and business units.
In March this year, Bank of America argued in court that recently bought Merrill Lynch should not have to disclose the 'secret recipe' of its remuneration policy - the new rules would render such a 'trade secret' defence obsolete.
OpRisk & Compliance will follow up with a feature on behavioural approaches to financial compensation in the July print issue. If you have comments, please email the author at [email protected]
More on Regulation
Dealers cheer decision to abandon two-sided obligation
Agency races to add staff by September 30 amid budget uncertainty
Advanced data analytics plays major role in SEC risk assessment
Korean won swap liquidity could suffer if KRX service is not approved
Sign up for Risk.net email alerts
Sponsored webinar: IBM
Watch highlights of this year's London conference
Operational risk and the challenges of defining and dealing with conduct risk
Watch discussions and speakers from our North America conference
There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.