Currency

Currency is Grant Thornton's electronic newsletter for bank executives. It is published periodically and covers issues and trends in the financial institutions industry.

Prepare for a clampdown on executive compensation

Historically, executive compensation plans have been designed to attract, retain and motivate key management. Today, executive compensation has become synonymous with corporate excess and managerial recklessness. The Federal Reserve Board (FRB) has proposed new guidance that will likely cause all banks to review and rethink their incentive compensation.

The proposed guidance articulates three principles designed to ensure that incentive compensation plans do not encourage excessive risk-taking by banks and that they are consistent with safety and soundness principles. The principles address three key areas:

• adopting incentives that do not encourage excessive risk-taking
• compatibility with effective controls and risk management
• strong corporate governance, including active oversight by boards of directors