Getting paid to manage money may soon be less restrictive at BlackRock Inc. than at JPMorgan Chase & Co. under a U.S. proposal that could make it harder for Wall Street banks to compete for talent.
Sweeping compensation rules released by six federal agencies last month reserve the toughest constraints -- including bonus deferrals and long-term clawbacks -- for financial firms with huge balance sheets consisting mostly of their own assets. Since firms like BlackRock primarily handle client money, their fund managers would face less-severe limits than someone doing similar work inside a giant bank.
If enacted as-is, the pay rules could hurt Wall Street lenders that have been trying to grow their wealth management businesses since the 2008 financial crisis. Any difficulties Morgan Stanley, Bank of America Corp. and Goldman Sachs Group Inc. face in recruiting and retaining employees could benefit Pacific Management Investment Co., Vanguard Group Inc. and Fidelity Investments.
“They keep making it more difficult to be a big bank,” said Oliver Ireland, a partner with law firm Morrison & Foerster in Washington. It doesn’t make sense to treat a bank employee differently than one who does similar work in an independent firm when the risks they pose to the system “may be identical,” he said.
Ill-fated Risks
Lawmakers put bonus-pay restrictions in the 2010 Dodd-Frank Act in response to concerns that incentive-based compensation packages spurred Wall Street executives to take ill-fated risks that contributed to the economic meltdown. The plan endorsed by agencies including the Securities and Exchange Commission and the Federal Reserve applies to all financial firms with more than $1 billion in assets, separating them into three tiers based on size. It targets them with a range of limits for senior officers and significant risk takers -- those who can affect their company’s bottom line.
At the biggest firms with more than $250 billion in assets, top officials would have 60 percent of their bonuses deferred for four years. At firms between $50 billion and $250 billion, half of bonuses would be deferred for three years for high-level officers. Lesser restrictions apply to smaller firms.
Clawback Provision
More worrisome for the industry may be a provision that allows companies to cancel or take back money for up to seven years after bonuses vest in cases where misconduct is found.
Of the 669 registered investment advisers subject to the rule, the SEC estimated only 18 would face the toughest level of regulation. Many of those are inside banks, and even the world’s largest money manager, BlackRock, doesn’t have enough proprietary assets to put it in the top tier.