JPMorgan, BofA would see pay rules hardened under U.S. proposal

NEW YORK – JPMorgan Chase & Co., Bank of America Corp. and the other four largest U.S. banks, which already restrict terms of senior executives’ incentive compensation, would face tougher limits under a new set of proposed U.S. rules.

The recommended curbs on pay practices that contribute to excessive risk-taking, which were put out for public comment Thursday by the National Credit Union Administration, would subject executives to clawbacks and a minimum four-year wait for most incentive pay. That would harden and extend practices already in place for the top executives at the six largest U.S. banks, many of which were implemented after the collapse of Lehman Brothers Holdings Inc. ushered in the worst financial crisis since the Great Depression.

At JPMorgan, the biggest U.S. bank by assets, CEO Jamie Dimon is required to hold performance-based equity awards for two years after they’ve vested, according to its latest proxy statement. Under the proposed rules, senior officers of firms with more than $250 billion in assets would have 60 percent of their incentive pay delayed for twice as long. The four-year holding requirement would start after the conclusion of any performance period.

“The banks have seen this coming since the dust settled after the recession,” John Trentacoste, a managing director at executive compensation consultant Farient Advisors, said in a telephone interview from Los Angeles. “A lot of the provisions that have come into pay programs in the last five years are all to show that this is really a long-term game for both shareholders and executives, and that they’re not in it for the one-year gain.”

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Dodd-Frank law

All six of the biggest U.S. banks have policies that allow them to claw back incentive compensation, according to their filings. They also have holding periods for portions of equity awards that extend into retirement.

Spokesmen for JPMorgan, Bank of America and Citigroup Inc. declined to comment on the compensation proposal, while those at Wells Fargo & Co. and Morgan Stanley didn’t immediately respond to requests for comment. Goldman Sachs Group Inc. had no immediate comment.

Pay practices that rewarded quick deals and short-term gains contributed to the 2008 credit meltdown, according to the Financial Crisis Inquiry Commission. Under the Dodd-Frank regulatory overhaul signed into law almost two years later, regulators were required to limit those kinds of incentives to help protect the financial system.

Seven years

The proposed rules could apply to senior executive officers as well as any employee designated a “significant risk taker” whose incentive pay exceeds one third of total annual compensation.

Employees would have to return bonuses — even those already vested — if they take inappropriate chances, draw an enforcement action or cause a loss by exceeding a firm’s risk limits, according to the proposals from the NCUA, one of six federal agencies that would adopt the rules. The other regulators, including the Federal Reserve and Securities and Exchange Commission, are expected to follow.

The clawbacks could be implemented for as long as seven years and would apply even to people who no longer work for the company, according to the proposal.

“What remains to be seen is how deep into the organizations this will cascade and how that will change the way these people are compensated,” Trentacoste said.

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