A never-adopted 2016 proposal would have deferred large portions of executives’ bonuses for several years and, for an even longer period, subjected them to clawbacks or a reduction in unvested incentive pay if they engaged in misconduct. The plan focused on significant risk-takers—employees at banks, brokerages and asset managers whose actions could be catastrophic because they had sway over huge chunks of assets.
Banks have long bristled that the rules are unnecessary and unfair. Lenders say they proactively made changes after the 2008 crisis, like forcing executives to wait longer to receive performance-based pay and unveiling new policies to recoup bonuses following big losses and allegations of wrongdoing.
Such reforms were on display last year when Goldman Sachs Group Inc. clawed back pay from ex-Chief Executive Officer Lloyd Blankfein and several other former managers after the firm paid more than $5 billion to settle allegations that it helped facilitate bribes as part of the 1MDB Malaysian fund scandal.
Banks and their lawyers also say privately that no other industry faces similar federal constraints. At a time when firms are engaged in an arms race for talent with Silicon Valley and other sectors, adding pay rules on top of the glut of existing post-crisis regulations might prompt candidates to ask, “Why bother pursuing a career in finance?”
“By subjecting banks to these requirements, you’re putting them at a severe disadvantage when it comes to retention and talent,” said Henry Eickelberg, chief operating officer of the HR Policy Association, a trade group that represents human resource officers at large corporations. “You’re going to cause them to have to pay more.”
Wall Street should have plenty of time to sharpen its lobbying strategy because imposing the limits will probably be a long-term project, despite progressives’ demands for urgency. Holdovers appointed by Trump still run some of the relevant agencies, and Biden won’t be able have all his nominees in place for another two years. It’s also expected to take a while for six different watchdogs to agree on how to proceed, write the rules, propose them and then approve an overhaul.
A key figure in the debate will be SEC Chairman Gary Gensler because the agency was a major driver of the 2016 proposal and an earlier one released in 2011. The former Goldman Sachs partner gained a reputation as a hard-nosed regulator and Wall Street adversary when he ran the Commodity Futures Trading Commission during the Obama administration.
The heads of the six agencies haven’t met to discuss the pay constraints since Biden’s inauguration. The OCC “remains committed to implementing the rules required by law,” said spokesman Bryan Hubbard, who added that regulators have issued guidelines that nudged the industry to change its practices. Spokespeople for the other agencies declined to comment.
When regulators start evaluating what to do, they will have no shortage of ideas from progressives to consider. For instance, Sarah Anderson, who directs the global economy project at the Institute for Policy Studies, would like to see senior executives put some of their bonus money into central pots that would be tapped if their firms are fined by regulators—so managers have stakes in the punishments.
“That would do a lot to change the culture on Wall Street,” she said. “As long as we have such massive bonuses, it’s just very difficult to have confidence in the banking system that people aren’t going to take really reckless actions to hit those jackpots.”
—With assistance from Jennifer Epstein.
This article was provided by Bloomberg News.