5/9/2012 How to Compensate in Today’s  Regulatory Environment

5/9/2012
How to Compensate in Today’s Regulatory Environment
Jon McDowell, BKD, LLP
Kathy Smith, Bank Compensation Consulting
Kelly Earls, Bank Compensation Consulting
May 17, 2012
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Complete group attendance form with  Title & date of live webinar  Your company name  Your printed name, signature & email address o
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Increased Regulations
• Federal Deposit Insurance Corporation (FDIC)
• The Department of the Treasury
• Comptroller of the Currency, Administrator of National Banks
• U.S. Securities & Exchange Commission (SEC)
• United States Federal Reserve System
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New Compensation Rules
• Interagency Guidance on Sound Incentive Compensation Policies (Federal Reserve Guidance) June 25, 2010
• Dodd‐Frank Wall Street Reform & Consumer Protection Act (Dodd‐Frank) July 21, 2010
• FDIC rule implementing Sec 956 of Dodd‐Frank builds on above regulations
• SEC – say‐on‐pay rules
• Regulation Z rules for compensating mortgage loan originators (MLO)
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Success of Financial Institutions
• Compensation arrangements are critical in successful management of financial institutions
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Attracting skilled staff
Promoting better organizationwide & employee performance
Providing retirement security to employees
Allowing organization’s personnel costs to vary along with revenues
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Federal Reserve Guidance on Compensation
• Why was it implemented?
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Common belief that poorly designed & unbalanced compensation structures contributed to financial industry crisis in 2007, 2008 & 2009
Short‐term nature of growth in revenue & profit with little regard to risk
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Three Principles in Guidance
• Provide incentives that balance risk & reward from financial results that do not encourage employees to expose institution to imprudent risks
• Be compatible with effective controls & risk management
• Be supported by strong corporate governance with effective & active oversight by board of directors
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Dodd‐Frank
• Nonbinding vote on executive pay & golden parachutes
• Shareholder proxy access
• Independent compensation committees
• No compensation for lies
• SEC review
• Enhanced compensation oversight for financial industry
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FDIC Rules for Sec 956
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The new rule affects institutions of $1 billion or more
Prohibits inappropriate risk‐taking
Requires deferred compensation
Requires additional reporting
Requires disclosure of policies & procedures
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Regulation Z
• MLOs under strict compensation rules
• Consumer Financial Protection Bureau (CFPB) taking broad approach to MLO compensation
• Message is inconsistent with other regulatory agencies
• Recent clarification to guidance
• Additional clarification coming this year
• How to incent your MLOs
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Concluding Comments
• Know that regulators are serious about it & it will be part of their exam
• Review existing plans if you have not already
• Review financial institution’s internal risk management & control processes with respect to compensation matters & oversee that financial institution has proper corporate governance processes to meet requirements of guidance. This entire process should be well‐documented for regulatory review during exam process
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Jon McDowell, CPA | Partner | 210.341.9400 | jmcdowell@bkd.com
Kathy Smith | President | 972.781.2020 | kathy.smith@bcc-usa.com
Kelly Earls, J.D., CPA | Principal | 972.781.2020 | kelly.earls@bcc-usa.com
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5/9/2012
Continuing Professional Education (CPE) Credits
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CPE Credit
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