Regulators propose new curbs on Wall Street pay

Financial regulators Thursday proposed new rules that would place limits on how Wall Street’s top executives make their money.

The proposal is aimed at ensuring executives are not encouraged to boost their paychecks by taking on loads of short-term risk, as critics argued such payment practices helped lead to the financial crisis.

{mosads}The rules, if finalized, would require top executives at some of the nation’s biggest financial firms to set aside over half of their pay for four years instead of the industry standard of three years. At the largest firms, executives would have to defer 60 percent of their incentive pay. That ratio declines for smaller institutions.

In addition, firms would have seven years to reclaim executive pay if it turned out an executive’s actions harmed the company. Such “clawback” practices are already in place in the financial industry, but Thursday’s proposal marks the first time the government has attempted to make it a regulated practice.

The project has been five years in the making and spans across six regulators, making it one of the largest unfinished pieces of the Dodd-Frank financial reform law.

The National Credit Union Administration, the first regulator to produce the rule, said the overall goal was to discourage incentive payment plans that encourage “inappropriate risk.” The other five regulators participated in drafting the rule and will consider it in the near future.

The rule would apply to financial institutions with over $1 billion in assets, but larger institutions would face increasingly strict rules, with firms owning more than $250 billion in assets facing the toughest requirements.

The compensation rules lingered for years as other major pieces of Dodd-Frank were completed, and some lawmakers had begun openly grumbling about how long it was taking regulators to address them. President Obama also signaled he wanted to see the rules finalized at a meeting with regulators earlier this year.

The agencies first proposed compensation rules in 2011, but later abandoned that initial draft amid broad opposition from the industry.