Incentive Compensation, Regulation and Financial Institutions – Is There a Path Forward?

Bonus and incentive compensation is under increasing scrutiny as the SEC and bank regulators determine the rules on performance-based compensation.  Yet, financial institutions must reward their top employees to retain their best people and deliver the results their shareholders demand.

According to Reuters, "The latest proposal from the SEC would require brokers, dealers and investment advisers with assets of over $1 billion to disclose their incentive-based compensation arrangements, and it places restrictions on schemes that could encourage excessive risk-taking. Executives at larger firms of $50 billion in assets or more would also have at least half of their incentive-based compensation deferred for three years."

By no means is this attention on incentive compensation and regulation limited to banks, investment advisors and broker dealers.  In recent years, insurance brokers were prohibited from taking contingency fees because of the potential conflict of interest with their customers and carriers.  They now can accept those fees at the risk of  increased regulatory attention.

What we are finding is that leading firms are proactively turning to companies like Varicent for a modern incentive compensation system that doubles as a risk and compliance solution for performance-based compensation.  Today, many banks, wealth advisors and insurance companies are using a collection of spreadsheets, legacy software, and home-grown and manual solutions to manage incentive compensation.  These methods were not designed to support the scrutiny and demands of the new world of incentive compensation.  The modern systems from companies like Varicent enable financial services institutions to implement incentive compensation programs that are risk-appropriate, supported by effective governance.