As reported yesterday by the Wall Street Journal, Daniel P. Stipano, deputy chief counsel, Office of the Comptroller of the Currency, called on banks to tie compensation to compliance, and said, “If you don’t do that, you’re really just engaging in empty talk.” The reaction from some in the industry: where have you been for the past five years?…
“I think the big story may be that a senior regulator is clueless about how his own government is regulating pay,” said Alan Johnson, a compensation consultant for financial services firm Johnson Associates. “The banks have embedded this in their pay systems as best they can, they spend a huge amount of money monitoring this kind of stuff. Compliance, following the rules, taking too much risk–they take those kinds of things extraordinarily seriously.” Indeed, there’s evidence pay is already reflecting compliance, at least on the downside. In June, a report by the consulting firm Equilar and the Financial Times found bank CEO pay down about 10% in 2012 on investor and regulatory pressure.
The lowest paid CEO in the study was Barclays CEO Antony Jenkins, whose predecessor, Bob Diamond, exited in the wake of the Libor scandal; Jenkins himself took no bonus “because of various scandals, including Libor,” the FT said. Earlier this year, Jamie Dimon saw bonus cut in half and faced a boardroom battle over splitting the CEO and chairman roles in the wake of compliance problems including the London Whale trading scandal.
In August, Wall Street Journal financial editor Francesco Guerrera wrote of a new “era of regulation” in banking. The open question seems not to be whether banks are adopting executive comp programs tied to compliance, but what unintended consequences might follow that focus on compliance.
The Wall Street Journal / September 27, 2013