"The Principal Principles of Risk-Adjusted Compensation: Federal Reserve Proposal Formally Joins the Mix"

On October 22, 2009, the Board of Governors of the Federal Reserve  released proposed guidance relating to compensation related matters to “help protect the safety and soundness of banking and promote the prompt improvement of incentive compensation practices throughout the banking industry” and to engage in two supervisory initiatives “to spur and monitor the industry’s progress toward the implementation of safe and sound incentive compensation arrangements, identify emerging best practices, and advance the state of practice more generally in the industry.”  

This Stroock Special Bulletin looks at this guidance and includes a chart comparing it with other principle-based considerations, which will be of interest to banks, other financial institutions and, more broadly, to other (non-financial) companies as these “principal principles” of risk-adjusted compensation continue to evolve.