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The Federal Reserve’s Guidance to Banking Organizations on Sound Incentive Compensation Arrangements


On October 22, 2009, the Federal Reserve System (Federal Reserve) issued proposed guidance to financial institutions regarding the development of incentive compensation arrangements that discourage excessive risk taking and protect the safety and soundness of banking organizations.

The proposed guidance provides the Federal Reserve with a much wider range of governance responsibility, as the Federal Reserve will be tasked with reviewing incentive compensation plans at all banking organizations and working with those organizations to appropriately re-design incentives that minimize risk. The Federal Reserve’s level of interaction with and oversight over all banking organizations with respect to incentive compensation will represent a drastic change in the way banking organizations have operated over the past several years.

Download the attached article below to learn more about the Federal Reserve’s guidance and potential implications of the guidance to banking organizations.

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